Capitalization Frequency Calculator

Analyze how different compounding intervals (Daily, Monthly, Quarterly, Annually) impact your final return. See the ranking from most to least profitable.

User Rating 0.0 ★★★★★
Total Usage 1 times
Category Deposits Savings
Is this tool helpful?

Your feedback helps us improve.

★ ★ ★ ★ ★

About

When banks advertise an interest rate, they often quote the 'Nominal Rate.' However, the actual amount you earn depends heavily on how often the interest is calculated and added back to your balance—a process known as capitalization. The more frequently interest is capitalized, the faster your money grows.

This tool strips away the marketing jargon to show you the raw math. By comparing Daily, Monthly, Quarterly, and Annual compounding side-by-side, you can see exactly how much 'free money' is generated simply by choosing an account with a more frequent payout schedule. While the difference might seem small on day one, the ranking table below reveals how these gaps widen over time.

APY banking math interest frequency

Formulas

We use the compound interest formula for four distinct frequencies. The variable n changes while r and t remain constant.

A = P (1 + rn)nt
  • Daily: n = 365
  • Monthly: n = 12
  • Quarterly: n = 4
  • Annually: n = 1

Reference Data

CompoundingPeriods/Year (n)Effective Rate (EAR) for 6% Nominal
Daily3656.183%
Weekly526.180%
Monthly126.168%
Quarterly46.136%
Semi-Annually26.090%
Annually16.000%
Simple Interest-6.000% (No Compounding)

Frequently Asked Questions

Not necessarily. It means the bank *calculates* the interest daily and adds it to your balance daily. However, the transaction might only appear on your statement once a month as a lump sum labeled 'Interest Payment'.
Continuous compounding is mostly a theoretical concept in calculus (using the constant 'e'). However, daily compounding (n=365) is so mathematically close to continuous compounding that for all practical consumer finance purposes, they are identical.
Lenders maximize their profit by compounding debt daily (charging you more), while some banks minimize their payout by compounding savings monthly or quarterly. Always check the 'Truth in Savings' disclosure.
EAR is the actual interest rate you earn after one year when compounding is taken into account. It allows you to fairly compare a 5% monthly compounding account against a 5.1% annual compounding account.