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APY Calculator (Effective Annual Rate)

Convert nominal APR to effective APY. Fact-check bank savings rates and loan costs by revealing the impact of daily, monthly, or quarterly compounding.

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About

In finance, the difference between APR (Annual Percentage Rate) and APY (Annual Percentage Yield) is the effect of compounding. Lenders often advertise the APR to make loans look cheaper, while banks advertise APY to make savings look higher. This tool acts as a translation layer, converting the nominal rate into the "effective" rate that you actually pay or earn over one year.

Small differences in compounding frequency can have meaningful impacts on large balances. For example, a credit card compounding daily results in a higher effective debt load than a mortgage compounding monthly, even if the headline rate is similar. This calculator complies with standard financial conversion formulas used in the Truth in Savings Act.

finance APY APR interest rates banking

Formulas

The formula for APY depends on the nominal rate r and the number of compounding periods per year n.

APY = 1 + rnn − 1

Note: r must be input as a decimal (e.g., 5% = 0.05).

Reference Data

CompoundingPeriods (n)Effect on 5% APR
Annual15.000%
Semi-Annual25.062%
Quarterly45.094%
Monthly125.116%
Daily3655.127%

Frequently Asked Questions

APR is the simple interest rate charged per year. APY includes the effects of compound interest within that year. APY is always higher than or equal to APR.
Always look at the APY for savings. It tells you exactly how much money you will have at the end of the year if you don't withdraw anything.
Credit card issuers maximize their return by compounding daily. While the difference between daily and monthly on small amounts is pennies, on billions of dollars of consumer debt, it represents significant revenue.