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APY Calculator

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Enter your nominal interest rate and compounding frequency to find your effective annual yield (APY).

APY Calculator

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APY (effective annual yield)
5.1162%
APY assumes interest is reinvested at the same rate for the full year - useful for comparing accounts with different compounding schedules.

The formula

APY = (1 + Nominal rate / n)ⁿ - 1 where n = number of compounding periods per year
Example

A 5% nominal rate compounded monthly: APY = (1 + 0.05/12)¹² - 1 = 5.1162% - slightly higher than the nominal rate due to compounding.

Step-by-step guide

  1. Enter the nominal (stated) annual interest rate.
  2. Choose the compounding frequency - check your account terms for this.
  3. Read the effective APY, which is always at or above the nominal rate.

Why APY is always the number to compare, not the nominal rate

Two accounts can advertise the exact same nominal rate but pay out meaningfully different amounts, simply because one compounds daily and the other compounds annually - more frequent compounding means interest starts earning interest sooner and more often within the year. APY exists specifically to strip away this difference in compounding schedule and express everything as a single, directly comparable effective yield, which is exactly why banks are required to disclose APY (not just nominal rate) when advertising savings products.

Common mistakes

Comparing one account's nominal rate against another's APY directly - always compare APY to APY, since they're calculated on a consistent basis.
Assuming a big compounding-frequency difference always means a big APY difference - in practice, going from monthly to daily compounding typically raises APY by only a small fraction of a percent at typical rates.

Frequently asked questions

What's the difference between APY and APR?

APY accounts for compounding and is typically used for savings/deposit products (what you earn). APR is generally used for loans and often does not account for compounding the same way, representing the cost of borrowing instead.

Does more frequent compounding always mean a meaningfully higher APY?

The difference shrinks as compounding gets more frequent - going from annual to monthly compounding makes a noticeable difference, but going from daily to hourly makes almost none, since the math approaches a mathematical limit (continuous compounding).

Can APY ever equal the nominal rate exactly?

Yes - when compounding occurs just once per year (n=1), APY and the nominal rate are identical, since there's no intra-year compounding to create a difference.

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