APY Calculator

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.