APY Calculator
Annual Percentage Yield (APY) is the real rate of return on an investment or savings account, taking into account the effect of compounding interest. Unlike the nominal annual rate, APY reflects how often interest is compounded — daily, monthly, quarterly, or annually — and gives you the true yearly growth of your money.
Use this calculator to compare savings accounts, CDs, or any interest-bearing product by converting the stated nominal rate into APY. Enter an optional principal to see your projected balance and total interest earned after one full year.
How it works
APY = (1 + r/n)^n − 1, where r is the nominal annual rate (as a decimal) and n is the number of compounding periods per year (365 for daily, 12 for monthly, 4 for quarterly, 1 for annually).
Use cases
- Comparing savings accounts and high-yield deposit products
- Evaluating certificates of deposit (CDs) with different compounding schedules
- Understanding the real return on a money market account
- Converting a nominal interest rate to its effective annual equivalent
- Estimating interest income on a fixed principal over one year
Frequently asked questions
What is the difference between APY and APR?
APR (Annual Percentage Rate) is the nominal yearly rate without compounding, while APY (Annual Percentage Yield) includes the effect of compounding interest. For the same nominal rate, APY is always equal to or higher than APR, and the gap grows as interest compounds more frequently.
How do I calculate APY from an interest rate?
Use the formula APY = (1 + r/n)^n − 1, where r is the nominal annual rate as a decimal and n is the number of compounding periods per year. For example, a 5% rate compounded monthly gives (1 + 0.05/12)^12 − 1 ≈ 5.12% APY.
Does compounding frequency really matter?
Yes, more frequent compounding produces a higher effective yield. A 5% nominal rate yields exactly 5.00% APY with annual compounding, about 5.12% with monthly compounding, and about 5.13% with daily compounding. The difference is modest at low rates but becomes more noticeable as rates rise.
Is a higher APY always better?
When comparing deposit products, APY is the fairest metric because it reflects the true yearly return regardless of how each product compounds. However, also check for account fees, minimum balance requirements, and promotional rates that expire, since these can reduce your real earnings.
How much interest will I earn in one year?
Multiply your principal by the APY expressed as a decimal. For example, 10,000 at 4.06% APY earns about 406 in interest over one full year, assuming no deposits or withdrawals. This calculator shows the projected balance automatically when you enter a principal.