APY Calculator
The Rate That Actually Matters When Comparing Accounts
Banks advertise a nominal interest rate, but that number alone doesn't tell you what you'll actually earn — compounding frequency does. APY (Annual Percentage Yield) converts a nominal rate and its compounding schedule into a single effective annual figure, which is the only fair way to compare two accounts that compound on different schedules.
The Formula
r is the nominal annual rate (as a decimal) and n is the number of times interest compounds per year. As n increases, APY rises toward but never reaches the continuously-compounded limit.
Why APY, Not Just the Nominal Rate
- Comparing savings accounts — two accounts both advertising "5%" can pay differently depending on whether that's compounded monthly, daily, or annually.
- Truth-in-savings disclosure — U.S. banks are required to disclose APY specifically because nominal rate alone can be misleading.
- CDs and money market accounts — compounding frequency is often the differentiator between otherwise similar products.
5% Nominal Rate at Different Compounding Frequencies
| Compounding | APY |
|---|---|
| Annually | 5.0000% |
| Semi-Annually | 5.0625% |
| Quarterly | 5.0945% |
| Monthly | 5.1162% |
| Daily | 5.1267% |
The gap between annual and daily compounding is only about 0.13 percentage points here — small on a single year, but it compounds further over multi-year holding periods.
How to Use This Calculator
- Enter the Nominal Annual Interest Rate as advertised by the account.
- Enter the Compounds per Year (defaults to 12 for monthly if left blank).
- Select Calculate to see the effective APY.
Related Calculations
To see the actual dollar growth at a given APY, use the Compound Interest Calculator, or compare against a loan's true cost with the Effective Interest Rate Calculator.