APY Calculator
Calculate the Annual Percentage Yield (APY) from a nominal interest rate and compounding frequency.
%
Compounding Frequency
The nominal rate is the stated annual rate before compounding. APY accounts for the effect of compounding within the year.
Result
APY
5.1162%
Effective Annual Rate
5.1162%
Nominal Rate
5%
APY is always equal to or higher than the nominal rate because compounding adds previously earned interest back into the principal.
How to use the APY calculator?
Enter the nominal (stated) annual interest rate and select how often interest compounds — daily, monthly, quarterly, semi-annually, or annually. The calculator shows the Annual Percentage Yield (APY), which is the real return you earn once compounding is taken into account.
Formula
r = nominal annual rate, n = compounding periods per year
Example
A savings account advertises 5% interest compounded monthly. The APY is (1 + 0.05/12)12 − 1 ≈ 5.1162%. You effectively earn 5.1162% per year, not just 5%, because each month's interest is added back to the principal before the next month's interest is calculated.
FAQs
- What is the difference between APY and APR? APY includes compounding; APR does not. For the same nominal rate, a product that compounds daily will have a higher APY than one that compounds annually.
- Why does compounding frequency matter? More frequent compounding means interest is added to the principal sooner, which increases the effective return for the same nominal rate.
- Is APY the same as effective annual rate (EAR)? Yes — APY and EAR are effectively the same metric.
Common Use Cases
- Comparing savings accounts or CDs that advertise different nominal rates and compounding frequencies.
- Understanding the real return on a fixed deposit or bond after accounting for compounding.
- Evaluating whether a higher nominal rate with less frequent compounding beats a lower rate with daily compounding.