APY Calculator
Calculate Annual Percentage Yield (APY) to see the true return on your investment when compounding is taken into account.
Calculator Inputs
The nominal interest rate before compounding
Used to calculate projected returns
Used for projected returns calculation
Results
5.12%
Effective annual rate with compounding
+0.12%
APY is higher than APR due to compounding
$10,511.62
$511.62
APY by Compounding Frequency
Investment Growth Over Time
While you are looking for the best savings accounts, certificates of deposit, or investment products, you will be frequently presented with two different rates: APR (Annual Percentage Rate) and APY (Annual Percentage Yield). These terms might look alike but knowing the difference between them can keep some money in your pocket and will give you a better control of your finances. To understand how interest compounds over longer periods, explore our compound interest calculator for detailed investment projections.
APY is the rate that you really get when you take into consideration the compounding. It is always the same or a greater one than the APR, because it is the one that reflects the fact that you earn interest on your interest. The difference between your APY and APR will be the bigger the more frequently interest is compounded.
Our APY calculator is the tool with which you can easily understand the actual profit that will be made out of your investment. Just by filling-in the APR and the compounding frequency you will get your real yearly yield at once. Additionally, you can use the initial investment box to visualize the exact amount of your earnings over time.
APR vs APY: What's the Difference?
APR (Annual Percentage Rate) is the simple interest rate - a rate which doesn't factor in compounding. A 5% APR, for instance, implies that you would get 5% of your principal as interest over a year, but only in the case where interest is calculated once at the end of the year.
APY (Annual Percentage Yield) is the real rate that you get. It takes into account the frequency of interest compounding. So, with a 5% APR and daily compounding, your APY may be 5.13%. That additional 0.13% may not point to a significant increase but it becomes quite substantial over time and with bigger sums of money.
Here's a simple example: If you put in $10,000 at an interest rate of 5% APR with an annual compounding, your money would grow to $10,500 after one year. However, if the compounding is daily at the same 5% APR, then your money would grow to $10,512.67 - which is $12.67 more and is what the 5.13% APY stands for.
How Compounding Frequency Affects APY
The higher your APY will be the more times in a day that interest is compounded. This is due to the fact that every time interest is added to your balance, the next interest calculation will be on a higher balance. Take a look at a comparison of different compounding frequencies to get a better idea:
- Annual Compounding: Interest is calculated and added once per year. APY equals APR.
- Monthly Compounding: Interest is calculated 12 times per year. APY is slightly higher than APR.
- Daily Compounding: Interest is calculated 365 times per year. APY is the highest for the same APR.
The difference is less visible at low interest rates or short time periods but changes significantly as either one or the other increases. If the APR is 5%, the APY for daily compounding will be approximately 0.13% higher than that for annual compounding. The difference between the two comes up to a little more than half a percent (0.52%) at 10% APR.
Why APY Matters for Your Savings
- 1.Compare Accounts Accurately: It is possible that two accounts may both display an interest rate of 5% but one daily and the other annually compounding, in which case the account with daily compounding will yield you more money. APY is what gives you the real comparison.
- 2.Maximize Your Returns: Opting for accounts offering a better APY - despite matching APRs - lets gains grow while keeping risk steady. That extra return comes at no added cost.
- 3.Plan Your Savings: Your savings target - whether it's retirement, a house deposit, or a trip - becomes clearer once you understand APY. That number shapes what ends up in your account later.
- 4.Understand the True Cost: For loans, APY shows you the true cost of borrowing. For savings, it shows you the true return on your money.
Using This APY Calculator
Our calculator makes it easy to understand APY:
- Enter the APR (the advertised interest rate)
- Select how often interest compounds (daily, monthly, etc.)
- Optionally enter an initial investment to see projected returns
- See your APY and how much more you earn compared to APR
- Compare different scenarios side-by-side
- View charts showing how compounding frequency affects APY
The calculator also provides a visual representation of how your investment would increase over time at the calculated APY, thereby helping you understand the concept of compound interest and enabling you to make informed decisions regarding your money.
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