EAR vs APR

Convert an annual percentage rate (APR) to an effective annual rate (EAR) based on how often interest is compounded.

Banks and loans often quote APR. To compare offers or see the true cost of borrowing, use EAR. More compounding per year means higher EAR for the same APR.

Useful for both English and Japanese students in finance and banking.

Key idea EAR = (1 + APR/m)^m − 1, where m is the number of compounding periods per year. APR is the stated rate; EAR is what you actually earn or pay over the year.

Step 1 – Enter APR

Enter the stated annual rate as a percentage (e.g. 12 for 12%). Choose how often interest is compounded per year.

Step 2 – See results

Effective Annual Rate (EAR)

The actual rate you earn or pay over one year with this compounding.

Same APR under different compounding

Compounding	EAR (%)

Example

12% APR compounded monthly: EAR = (1 + 0.12/12)^12 − 1 ≈ 12.68%. So a loan at 12% APR (monthly) has an effective cost of about 12.68% per year.

Key words

APR (Annual Percentage Rate): The stated annual interest rate, before compounding. Often used in loan and deposit quotes.
EAR (Effective Annual Rate): The actual annual rate after compounding. Use EAR to compare different loans or investments.