 TITLE: What Is the Effective Annual Interest Rate (EAR)? CONTENT: Why Is the Effective Annual Interest Rate Important?\n----------------------------------------------------\nWhether you're creating a debt payoff plan or a retirement strategy, understanding the EAR is crucial to your approach.\nWith a loan or credit card, the EAR provides you with the true cost of the debt. For relatively low balances and interest rates, it likely won't be significantly different from the posted APR. But if you have a lot of debt on a credit card, the cost of borrowing could end up being quite a bit more than you think.\nOn the flip side, if you're planning your approach to retirement, the goal is to find out how much you need to save on a monthly basis to achieve your goal for what you want once you leave the workforce. If you don't include compounding interest, you'll overestimate how much you need to set aside.\nCalculating the expected EAR on your investments will give you a much more accurate idea of what you need to save every month to accomplish your goal. Of course, annual returns aren't guaranteed, but working with a good financial advisor can help you come up with good enough assumptions to make the plan work. END