APY (Annual Percentage Yield) Calculator
Calculate the effective annual return on a savings account or investment accounting for the effect of compounding.
How to use this tool
- Enter nominal annual interest rate and compounding frequency in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your apy (annual percentage yield) and the full breakdown beneath it.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
APY = (1 + r/n)n − 1
where r = nominal annual rate (decimal), n = number of compounding periods per year.
How it works
The Annual Percentage Yield (APY), also called the Effective Annual Rate (EAR), converts a nominal rate with any compounding frequency into its equivalent annually compounded rate. A higher compounding frequency produces a higher APY from the same nominal rate because interest is credited more often and itself earns interest sooner. Truth-in-Savings regulations in the US require banks to disclose APY so depositors can make apples-to-apples comparisons.
Worked example
5% nominal rate compounded monthly
- Nominal rate r = 5% = 0.05, compounding periods n = 12
- Periodic rate = 0.05 / 12 = 0.0041667 per month
- APY = (1 + 0.0041667)^12 − 1
- (1.0041667)^12 = 1.051162
- APY = 1.051162 − 1 = 0.051162 = 5.1162%
APY = 5.1162%
Common mistakes to avoid
- Confusing APY with APR — APR does not account for compounding; APY does. A 6% APR compounded monthly yields an APY of about 6.17%.
- Entering the nominal rate as a percentage (e.g., 5) instead of a decimal (0.05), producing a wildly inflated result.
- Assuming daily compounding always beats monthly compounding by a large margin — the difference is often only a few basis points at typical savings rates.
Key terms
- APY (Annual Percentage Yield)
- The effective annual return on a deposit account, accounting for compounding within the year; required disclosure under US Truth in Savings Act.
- Nominal Interest Rate
- The stated rate before adjusting for the compounding frequency; lower than APY whenever compounding occurs more than once per year.
- Compounding Frequency
- How often interest is calculated and credited to the account balance within a year (e.g., monthly = 12 times).
- Effective Annual Rate (EAR)
- Synonymous with APY; the equivalent annually compounded rate that produces the same return as the nominal rate with its compounding schedule.
Frequently asked questions
- What is the difference between APY and APR?
- APR is the stated annual rate without compounding. APY reflects the effect of compounding and shows what you actually earn over a year. APY is always >= APR.
- Does continuous compounding give a significantly higher APY than daily compounding?
- Only marginally. At 5% nominal rate, daily compounding gives an APY of ~5.127% versus ~5.127% for continuous — the difference is a fraction of a basis point.
- How do I compare two savings accounts with different compounding frequencies?
- Convert each to APY using this calculator. The account with the higher APY will produce more interest regardless of its stated APR or compounding schedule.