Overview
Enter a nominal annual interest rate (APR) and choose how often it compounds - daily, monthly, quarterly, semi-annually, or annually - to calculate the annual percentage yield (APY): the actual rate of return earned in a year once compounding is factored in. The formula used is APY = (1 + r/n)^n − 1, where r is the APR expressed as a decimal and n is the number of compounding periods per year. Because interest earned in one period starts earning its own interest in the next, a 5% APR compounded monthly actually yields slightly more than 5% over a year - the APY captures that difference, which is why it's the number banks are required to advertise for savings accounts and CDs, while APR is more commonly quoted for loans. The tool shows the formula with your actual numbers substituted in, not just the final answer. Runs entirely client-side, and this is an informational estimate, not financial advice.
Best for: Comparing two savings accounts that advertise the same APR but compound at different frequencies
How to use this tool
- Enter the nominal rate (APR). The stated annual interest rate as a percentage, e.g. 5.
- Choose a compounding frequency. Daily, monthly, quarterly, semi-annually, or annually.
- Read the APY. The effective annual yield, along with the formula shown with your actual numbers substituted in.
Frequently asked questions
APY accounts for compounding - interest earned in each period is added to the balance and starts earning its own interest in the next period. The more frequently interest compounds (daily versus annually, for example), the more this effect adds up over a year, so APY is always equal to or greater than the APR for any compounding frequency more often than once a year. Entering 0% just returns 0% APY, since there's no interest to compound.
It changes n, the number of times per year interest is calculated and added to the balance, in the formula APY = (1 + r/n)^n − 1. A higher n (like 365 for daily compounding) means interest compounds more often, so more of it starts earning its own interest sooner, which pushes the effective yield slightly higher than a less frequent compounding schedule at the exact same nominal rate.
No - APR is the stated nominal rate before compounding is factored in, while APY (also called the effective annual rate) is the actual return you'd earn over a year once compounding is included. For loans, APR is more commonly quoted; for savings products, APY is the number that lets you fairly compare accounts with different compounding schedules.