What is APY?
APY stands for Annual Percentage Yield, otherwise called Effective Annual Rate (EAR). This measurement is used to estimate the potential gain from an investment or the final balance in a deposit account. APY shows how an initial amount grows over time under compounding, making it an ideal tool for comparing different financial products that compound interest at different frequencies.
In order to make smart financial decisions, you need to consider not only the interest rate but also the period of time you plan to invest, and whether interest is simple or compound. With annual percentage yield, you can compare a number of interest rates that have different compounding periods on a level playing field.
How does this APY calculator work?
This APY calculator supports four calculation modes:
- APY from Interest Rate — Enter your nominal interest rate (APR) and compounding frequency to find out the actual APY you'll earn.
- Interest Rate from APY — Know the APY and compounding frequency? Work backwards to find the equivalent nominal rate (APR).
- Final Balance — Enter an initial investment amount, interest rate, compounding frequency, and time period to calculate how much your money will grow.
- Required Initial Balance — Have a target final balance in mind? Find out how much you need to invest today to reach it.
The calculator also displays a comparison table showing APY for all standard compounding frequencies (daily, weekly, monthly, quarterly, semi-annually, and annually) so you can see exactly how compounding frequency affects your returns.
Currency support includes 20+ world currencies: USD, EUR, GBP, JPY, CHF, CAD, AUD, CNY, INR, BRL, MXN, KRW, RUB, PLN, CZK, TRY, ZAR, SEK, NOK, DKK, and more.
How to calculate annual percentage yield
The calculation of annual percentage yield is based on the following equation:
APY = (1 + r/n)n − 1
Where:
- r — The nominal annual interest rate (expressed as a decimal, e.g., 5% = 0.05)
- n — The number of times interest is compounded per year
For example, with an interest rate of 5% compounded monthly (n=12):
APY = (1 + 0.05/12)12 − 1 = 5.1162%
The more frequently interest compounds, the higher the APY — even if the nominal rate stays the same. Here's a comparison for 5% nominal rate:
| Compounding Frequency | n (times/year) | APY |
|---|---|---|
| Annually | 1 | 5.0000% |
| Semi-annually | 2 | 5.0625% |
| Quarterly | 4 | 5.0945% |
| Monthly | 12 | 5.1162% |
| Weekly | 52 | 5.1246% |
| Daily | 365 | 5.1267% |
Difference between APR and APY
APR (Annual Percentage Rate) is the nominal interest rate stated without compounding effects. APY (Annual Percentage Yield) includes the effect of compounding, giving you the true annual return.
The best way to understand the difference is with a real-world example. Suppose you take out a car loan at 12% APR with monthly interest payments. Each month you pay 12 / 12 = 1%. If we translate this into APY:
APY = (1 + 0.12/12)12 − 1 = (1.01)12 − 1 ≈ 12.68%
So while the bank advertises 12% APR, you are actually paying the equivalent of 12.68% APY. APR and APY are only equal when interest compounds once per year and there are no additional fees.
Key takeaway: When comparing savings accounts or investments, higher APY is better. When comparing loans, lower APR is better (and watch out for the true cost via APY).
FAQs
What is an APY in a savings account?
APY in a savings account tells you how much your money will grow by in one year as a percentage of the initial deposit amount, taking into account the effect of compounding. The number should be clearly stated on the account, allowing you to easily compare offers between different banks or financial products. For example, an account with 4.5% APY will turn $10,000 into $10,450 after one year.
Is a higher APY always better for savings?
Yes — for savings and investments, a higher APY means you earn more money over time. Always compare APY (not just APR or the stated rate) when choosing between savings accounts, CDs (certificates of deposit), or other deposit products, because APY already accounts for compounding frequency.
What compounding frequency is most common in the US?
In the United States, most savings accounts and money market accounts compound daily or monthly. CDs (certificates of deposit) often compound daily or semi-annually. US Treasury bonds pay interest semi-annually. Many online high-yield savings accounts advertise daily compounding, which gives a slightly higher APY than monthly compounding at the same nominal rate.
What is continuous compounding?
Continuous compounding is the theoretical limit when n approaches infinity. The formula becomes: APY = er − 1, where e is Euler's number (~2.71828). For a 5% rate, continuous compounding gives APY = e0.05 − 1 ≈ 5.1271% — only marginally higher than daily compounding.
How is APY different from interest rate?
The interest rate (or APR) is the base rate stated by the lender or bank. APY is what you actually earn or pay after accounting for how often that interest compounds throughout the year. For savings products, banks are required by US law (Truth in Savings Act) to disclose the APY so consumers can make fair comparisons.