APY Calculator
Convert nominal rates into real annual earnings. Annual Percentage Yield (APY) captures the full effect of compounding frequency, showing the exact annual return your savings or Certificate of Deposit (CD) actually generates.
Nominal APR stated by the bank before compounding
How frequently accrued interest is credited into the balance
Deposit amount to calculate concrete 1-year dollar interest
Effective annual yield including compounding
How to Use This Calculator
- Enter the nominal interest rate quoted on your bank account or CD disclosure.
- Select the accounts compounding frequency (most online savings banks compound daily).
- Optionally enter your opening deposit to calculate concrete dollar returns.
- Compare the resulting APY directly against competing financial institutions.
Formula & Calculation Methodology
Compounding frequency exponentially raises the effective annual yield (APY) beyond the stated nominal contractual interest rate (r).
Worked Example
5.00% nominal rate with daily compounding (365 times/yr) on $10,000
Frequently Asked Questions
What is the difference between APR and APY?↓
APR (Annual Percentage Rate) is used for loans and debt and does not reflect intra-year compounding. APY (Annual Percentage Yield) is used for savings and investments and includes the wealth-multiplying effect of compounding.
Does daily compounding produce significantly more money than monthly compounding?↓
On $10,000 at 5%, monthly compounding yields 5.116% ($511.62/yr) while daily compounding yields 5.127% ($512.67/yr). The difference is modest on small balances, but expands meaningfully on six-figure accounts over multi-year horizons.
Why are banks legally required to display APY in advertisements?↓
Under the Truth in Savings Act (TISA), U.S. banks must prominently disclose APY to allow consumers to compare deposit products with differing compounding schedules on an identical, standardized annual basis.
What is the mathematical limit of continuous compounding?↓
As compounding frequency approaches infinity, the formula converges to e^(r) - 1. For a 5% nominal rate, continuous compounding yields a theoretical maximum APY of 5.12711%.
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Source Citation & Disclaimer
Informational tool only; not licensed tax, legal, or financial advice.