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Using the example of a savings account, explain the difference between the EAR and the APR.
On Jun 30, 2024
The EAR is what you actually earn; the APR is a quoted rate. If interest is compounded during the year, the ending balance of a savings account cannot be calculated directly using the APR. Also, in the case of the savings account, the EAR will always be higher than the APR as long as the account is compounded more than once a year and the interest rate is greater than zero.