APY Calculator
Convert a nominal interest rate to its effective annual yield (APY) and see what a deposit earns.
How the apy calculator works
Banks quote a nominal annual rate, but what you actually earn depends on how often interest compounds. APY (annual percentage yield) is the effective rate after compounding: APY = (1 + r/n)ⁿ − 1, where r is the nominal rate and n is the number of compounding periods per year.
A 5% nominal rate compounded monthly yields 5.116% APY; compounded daily, 5.127%. In the limit of compounding every instant — continuous compounding — the formula becomes eʳ − 1, which is barely above daily. The calculator supports all of these, so you can compare quotes on equal footing.
Because APY already bakes in compounding, it is the right number for comparing savings accounts and CDs. Two accounts with the same APY pay the same, regardless of how their nominal rates and frequencies differ.
How to use this calculator
- Enter the nominal (stated) annual interest rate.
- Choose the compounding frequency — annually through daily, or continuously.
- Enter a deposit amount and a holding period to see dollar earnings.
- Press Calculate to see the APY and projected balance.
Key terms
- APY (annual percentage yield)
- The effective annual rate after compounding — what a deposit actually earns in a year.
- Nominal rate
- The stated annual rate before accounting for compounding frequency.
- Continuous compounding
- The mathematical limit of compounding infinitely often; yields eʳ − 1 and is only slightly above daily compounding.
Tips
- Always compare savings products by APY, not nominal rate — banks are required to disclose it.
- APY assumes the rate holds for a full year; promotional rates that expire early will earn less.
- For loans the analogous concept is APR, which works differently — it spreads fees over the term rather than measuring compounding.
Frequently asked questions
What is the difference between APY and APR?
APY measures what deposits earn including compounding, and is used for savings. APR measures the cost of borrowing including certain fees but ignoring intra-year compounding, and is used for loans. They are not interchangeable.
Does more frequent compounding always mean more interest?
Yes, but with rapidly diminishing returns. At 5% nominal, moving from annual to monthly compounding adds about 0.12 percentage points of yield; moving from daily to continuous adds less than 0.001.
Why does my bank quote both a rate and an APY?
The interest rate is the nominal figure used internally to compute daily or monthly credits; the APY is the standardized effective figure for comparison shopping. When they differ, the APY is the one that reflects your actual annual earnings.
Planning further? Try the compound interest calculator, the savings goal calculator or the simple interest calculator.
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