Personal Finance
Effective annual rate
The true annual yield once compounding is taken into account.
The Formula
Effective = (1 + rate/n)^n - 1
The true annual yield once compounding is taken into account.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| EAR | Effective annual rate | rate | Yield including compounding. |
What Each Symbol Means
EARrate
Effective annual rate
Yield including compounding.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate savings account interest page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Savings Account Interest, filed under Finance. Every number the guide produces comes from substituting into this one line.