Effective Annual Rate (EAR) Calculator
A “7% rate” isn’t one number — compounded monthly it really costs 7.23% a year; daily, 7.25%. The effective annual rate (EAR) is the honest apples-to-apples figure. Enter any nominal rate and compounding frequency.
EAR = (1 + r/m)m − 1. A 7% APR is effectively 7.23% compounded monthly, 7.25% daily. A credit card’s 24.99% APR compounds daily to a true 28.38% a year.
- 7% monthly compounding7.23% EAR
- 7% daily7.25% EAR
- 24.99% card APR, daily28.38% EAR
- Same idea asAPY (for deposits)
EAR and APY are the same math; lenders quote APR because it looks smaller.
7% nominal at every frequency
| Compounding | EAR | Interest on $10,000 |
|---|---|---|
| Annual | 7.000% | $700.00 |
| Semiannual | 7.123% | $712.25 |
| Quarterly | 7.186% | $718.59 |
| Monthly | 7.229% | $722.90 |
| Daily | 7.250% | $725.01 |
| Continuous | 7.251% | $725.08 |
Two lessons hide in that table. First, frequency matters less than people fear — daily vs. monthly is 21 cents per $1,000. Second, it matters most at high rates: at credit-card APRs the daily-compounding gap widens to whole percentage points, which is exactly where it’s quoted least loudly.
Frequently asked questions
What is the effective annual rate?
The rate you actually pay or earn over a year once compounding is counted: EAR = (1 + r/m)^m − 1 for m periods, or e^r − 1 for continuous compounding.
Is EAR the same as APY?
Same formula. Banks say APY when paying you (it looks bigger), APR when charging you (it looks smaller). EAR is the neutral term for either direction.
Why does my credit card cost more than its APR?
Card interest compounds daily: 24.99% ÷ 365 applied every day compounds to about 28.38% over a year — the EAR is the number your balance actually feels.
Does compounding frequency matter for my savings account?
Barely, at current rates: 4.5% daily vs monthly differs by under $1 per $10,000 per year. Chase the headline rate, not the compounding frequency.
Sources & methodology
Sources: NumberBench methodology.
Results update as you type and are general estimates, not financial advice.