 TITLE: What Is the Effective Annual Interest Rate (EAR)? CONTENT: What Influences an Effective Annual Interest Rate?\n--------------------------------------------------\nWhen you shop around for a loan or a credit card, the interest rate is often reflected as the APR. This rate includes interest charges as well as fees. On a credit card, however, the APR you see doesn't necessarily paint a complete picture. If you don't pay your bill in full every month, you may end up paying interest not only on your principal balance but also on the interest that accrued in previous months.\nThis concept is called compound interest and it can be a good thing if you're earning interest, but not so good if you're paying it.\nSince credit card APRs don't account for compounding interest, you'll need to calculate the EAR to find out the account's real-world interest rate based on both the interest rate and compounding period.\nThe same is true for investments and interest-bearing accounts, which may compound the interest or gains that you earn on top of your principal balance and what you've already earned in the account.\nMore frequent compounding periods result in a higher EAR. In other words, a savings account that compounds interest daily will generate more interest annually than an account that compounds monthly. END