EAR, or equivalent annual rate, is the rate that shows the cost of being overdrawn on a current account over a year. It assumes the overdraft interest compounds, but unlike APR it excludes any separate account or arrangement fees.
In one line: EAR is the compounded yearly interest cost of an arranged overdraft, shown before any flat fees are added.
How EAR works
Banks quote EAR on overdrafts so the interest cost can be compared across providers. It reflects what would be charged if the account stayed overdrawn and the interest itself accrued interest across the year.
Since April 2020 the FCA has required banks to charge overdraft interest as a single EAR rather than daily fees, and many sit around 39.9% EAR. On a 500 GBP overdraft held for a full month that is roughly 16 GBP in interest.
Because EAR leaves out flat fees, the headline figure shows the interest element cleanly, which is useful when one account adds a monthly fee and another does not.
EAR vs APR
APR is used for loans and credit cards and rolls compulsory fees into the rate. EAR is used for overdrafts and shows interest only, with fees stated separately.
Both assume compounding, so a single percentage captures the yearly cost, but the two are not directly comparable because they treat fees differently.
Primary source: FCA overdraft rules (PS19/16)