APY Calculator
Convert nominal interest rates to Annual Percentage Yield. Compare real returns across accounts with different compounding frequencies side by side.
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Frequently Asked Questions
What is the difference between APR and APY?
APR (Annual Percentage Rate) is the stated nominal interest rate without accounting for compounding. APY (Annual Percentage Yield) reflects the actual return after compounding. A savings account advertising 5% APR compounded monthly actually yields 5.12% APY. Banks advertise APY on savings products (higher number) and APR on loans (lower number).
Why does APY matter when choosing a savings account?
APY provides a standardized way to compare accounts with different compounding frequencies. An account offering 4.95% compounded daily (4.95% APY is about 5.07%) could actually earn more than one offering 5.00% compounded annually (5.00% APY). Always compare APY rather than the stated nominal rate to find the best deal.
How is APY calculated?
The formula is APY = (1 + r/n)^n - 1, where r is the nominal annual rate as a decimal and n is the number of compounding periods per year. For a 5% rate compounded monthly: APY = (1 + 0.05/12)^12 - 1 = 0.05116 or 5.116%. The more frequently interest compounds, the higher the APY relative to the nominal rate.
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