How do you calculate effective annual rate?

The effective annual rate calculation is a function of the stated interest rate and frequency of compounding. The effective annual rate formula is: Effective Annual Rate = 1 + ( (Nominal Annual Interest Rate/# compounding periods) ^ # compounding periods)-1 The greater the number of compounding periods, the higher the return.

What is effective annual interest rate?

The effective annual interest rate is also known as the effective interest rate (EIR), annual equivalent rate (AER), or effective rate. Compare it to the Annual Percentage Rate (APR) which is based on simple interest. The table below shows the difference in the effective annual rate when the compounding periods change.

What is the effective annual rate (EAR) calculator?

You can use the effective annual rate (EAR) calculator to compare the annual effective interest among loans with different nominal interest rates and/or different compounding intervals such as monthly, quarterly or daily. Effective annual rate (EAR), is also called the effective annual interest rate or the annual equivalent rate (AER).

What is an effective annual rate (APR)?

The APR is a specific rate that uses simple interest where the principal remains constant throughout the period. It is not helpful for loans or deposits that state that the interest is compounded. An effective annual rate accurately represents the annual interest as it caters to the different compounding periods.