APY Calculator — annual percentage yield

How it works

Two accounts can quote the same nominal rate yet pay different amounts, because one compounds more often. APY folds the compounding into a single comparable number — the effective annual rate, per LibreTexts:

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. Each period adds interest that itself earns interest next period, so the more often it compounds, the higher the APY climbs above the nominal rate — though with diminishing returns as n grows.

Banks are required to advertise savings accounts and CDs by their APY (under the Truth in Savings Act) precisely so you can compare them directly, whatever their compounding schedule. The calculator also shows the interest and balance on a deposit after one year.

Worked example

A 5% nominal rate compounded monthly (n = 12): APY = (1 + 0.05 ÷ 12)¹² − 1 ≈ 0.05116, or 5.116%. On a $10,000 deposit that is $511.62 of interest in the first year, for a balance of $10,511.62 — about $11.62 more than the $500 you would get at a flat 5%.

Frequently asked questions

What is the difference between APY and interest rate?

The nominal interest rate is the stated rate; the APY is what you actually earn after compounding. Because interest compounds and earns more interest, the APY is always at least the nominal rate, and higher the more often it compounds.

How do you calculate APY?

Divide the nominal rate by the number of compounding periods per year, add 1, raise it to that number of periods, and subtract 1: APY = (1 + r/n)ⁿ − 1. For 5% compounded monthly, that is 5.116%.

Why is APY higher than the nominal rate?

Because compounding pays interest on previously earned interest. Only with annual compounding (n = 1) are the APY and nominal rate equal; any more frequent compounding raises the APY.

Does more frequent compounding always help?

It helps, but with diminishing returns. Going from annual to monthly compounding matters much more than going from daily to continuous — the gap between daily and monthly on a 5% rate is only a fraction of a basis point.

What is the difference between APY and APR?

APY describes what you earn on savings (with compounding); APR describes the cost of borrowing and typically excludes compounding. For the same rate and schedule, an APY is larger than the matching APR.

Why do banks advertise APY?

The Truth in Savings Act requires deposit accounts to be quoted by APY so consumers can compare them on equal terms, regardless of how often each one compounds.