what is ear in finance

In finance, EAR stands for Effective Annual Rate, which is the interest rate that is adjusted for compounding over a given period. It is used to compare the returns on different investment opportunities, such as stocks, bonds, or savings accounts, and to calculate the cost of credit card debt. EAR can also be used to evaluate interest payable on a loan or any debt or to assess earnings from an investment, such as a guaranteed investment certificate (GIC) or savings account. The EAR formula takes into account the nominal interest rate and the number of compounding periods per year. By calculating the EAR of each investment or loan, investors and borrowers can determine which option will provide the highest return or lowest cost over a specific period.