APY Calculator
Convert a nominal interest rate into annual percentage yield, and compare accounts honestly.
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APY includes compounding, APR does not
A nominal 5 percent compounded monthly yields 5.12 percent over a year, because each month's interest earns interest. APY is that true figure. APR states the nominal rate without compounding, which is why a savings account advertising APY and a loan advertising APR are not directly comparable even at identical percentages.
Frequency has diminishing returns
At a 5 percent nominal rate: annual compounding gives 5.00 percent, quarterly 5.09, monthly 5.12, daily 5.13, and continuous 5.127. The jump from annual to monthly is worth having; from monthly to daily it is a rounding difference. An account advertising daily compounding as a headline feature is selling something worth about a hundredth of a percent.
The gap widens with the rate
At 1 percent, monthly compounding adds barely anything. At 20 percent, monthly compounding turns it into 21.94 percent. This is why compounding frequency matters far more on credit card debt than on a savings account, and why card issuers compound daily.
Comparing accounts requires APY on both sides
Regulators in many jurisdictions require deposit accounts to quote APY precisely so comparison is possible. When one provider quotes a nominal rate and another quotes APY, convert before comparing — the difference is usually smaller than the marketing implies but it is not zero.
What APY still hides
Introductory rates that expire, balance tiers where the headline applies only above a threshold, monthly fees that exceed the interest on a small balance, and withdrawal limits. An account paying 4.5 percent with a 5 monthly fee pays negative interest below about 1,400. The rate is the start of the comparison, not the end of it.
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Frequently Asked Questions
What is the difference between APR and APY?
APY includes the effect of compounding and APR does not. A nominal 5 percent compounded monthly is 5.12 percent APY, so the two are not comparable at the same headline number.
How much does compounding frequency matter?
Less than advertised at low rates. At 5 percent, monthly compounding gives 5.12 percent and daily gives 5.13. At 20 percent the gap widens to nearly two points.
Why do credit cards compound daily?
Because the gap grows with the rate. At 20 percent nominal, daily compounding raises the effective rate to almost 22 percent, which matters far more than on a savings account.
Does the highest APY mean the best account?
Not necessarily. Introductory periods, balance tiers, withdrawal limits and monthly fees all change the outcome — a 5 monthly fee makes a 4.5 percent account negative below about 1,400.
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How to Use
Enter the nominal rate, compounding frequency and balance to get the APY.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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