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Finance

APY Calculator

Calculate the Annual Percentage Yield (APY) from a nominal interest rate and compounding frequency. Compare savings accounts and investments.

What is APY Calculator?

The APY Calculator converts a nominal interest rate into its Annual Percentage Yield, which reflects the true return after accounting for compounding. APY lets you fairly compare savings accounts, CDs, and investments that compound at different frequencies.

How to use

  1. 1 Enter the nominal interest rate advertised by the bank or investment.
  2. 2 Select how frequently interest compounds: daily, monthly, quarterly, and so on.
  3. 3 Optionally enter a principal amount to see your actual yearly and monthly earnings.
  4. 4 Compare the APY to the nominal rate to understand the benefit of more frequent compounding.

Formula

APY = (1 + r/n)^n - 1, where r is the nominal rate and n is the number of compounding periods per year. For continuous compounding: APY = e^r - 1.

Example calculation

A savings account advertised at 5% nominal interest compounded daily has an APY of 5.1267%. On a $10,000 deposit that means $512.67 in annual earnings rather than the $500 the nominal rate implies.

Frequently asked questions

What is the difference between APY and APR?

APY measures what you earn on savings and deposits; it accounts for compounding. APR measures the cost of borrowing and typically does not include compounding. Always use APY when comparing savings products.

Why does compounding frequency matter?

The more frequently interest compounds, the more you earn because each period you earn interest on the interest already credited. Daily compounding produces a slightly higher APY than monthly compounding at the same nominal rate.

What is continuous compounding?

Continuous compounding is a mathematical limit where interest compounds infinitely many times per year. The formula is APY = e^r - 1. In practice, daily compounding comes very close to continuous compounding.

How do I compare two savings accounts with different compounding?

Convert both to APY using this calculator and compare the APY figures directly. The account with the higher APY will grow your money faster regardless of nominal rate or compounding frequency.

Is APY the same as total return?

No. APY is an annualised rate. Total return also depends on how long you hold the investment. Multiply APY by the number of years (with compounding) to estimate total growth over a longer period.