Effective Annual Rate (EAR) Term category: Finance/Accounting In 10 words or less: The interest rate when you account for compounding
Definition: The actual interest rate when accounting for compounding. It is calculated as follows:
EAR = [1 + (i/n)]^n - 1; where
i = stated annual interest rate n = number of compounding periods
StockJargon Advice: The concept of EAR is crucial to understand if you carry a credit card balance. The interest you would have to pay is higher than what the APR indicates. For example, a 10% APR compounded daily results in an EAR of 10.51%. A 30% APR compounded daily would result in an EAR of 35%!