Effective Annual Rate (EAR)
Rate of interest that investors actually realize as a result of the compounding (i.e. 8% stated annual rate compounded quarterly is actually 2% per quarter which is not exactly equal to 8% annually)
Represents the annual rate of return actually being earned after adjustments have been made for different compounding periods.
Greater the compounding periods (i.e. semiannual, quarterly, monthly), the greater the EAR > stated annual rate.