Calculate Annual Percentage Yield (APY) from nominal interest rate and compounding frequency. Compare savings growth across compounding periods.
Annual Percentage Yield (APY) represents the real rate of return you earn on savings or investments when compounding is taken into account. Unlike the nominal interest rate, APY shows exactly how much your money grows in a year, including the effect of interest earning interest — the power of compounding.
Banks advertise APY on savings accounts and CDs because it is always higher than the nominal rate (assuming compounding happens more than once per year). The more frequently interest compounds, the higher the APY. Daily compounding yields slightly more than monthly, which yields more than quarterly, and so on.
This calculator converts any nominal rate into APY based on your chosen compounding frequency. It also projects your savings growth over time, including regular monthly additions. Use the comparison table to see exactly how much difference compounding frequency makes — and understand why APY is the number that truly matters for your savings.
When comparing savings accounts, CDs, or money market funds, APY is the only fair comparison metric. A 5.0% rate compounded daily produces a higher APY than 5.0% compounded monthly. This calculator shows you the exact difference, helping you choose the account that genuinely earns you the most money. Keep these notes focused on your operational context.
APY = (1 + r/n)^n − 1, where r = nominal annual rate (decimal), n = compounding periods per year. For continuous compounding: APY = e^r − 1.
Result: APY: 5.1162% — $10,000 grows to $24,573 in 5 years with $200/mo additions
A 5.0% nominal rate compounded monthly produces an APY of 5.1162% — the extra 0.1162% comes entirely from compounding. With $10,000 initial and $200/month over 5 years, total deposits are $22,000 and total interest earned is approximately $2,573.
Albert Einstein allegedly called compound interest the eighth wonder of the world. Whether or not he said it, the math is real: money that earns interest, and then earns interest on that interest, grows exponentially. APY captures this effect in a single number, making it the most important metric for comparing savings vehicles.
High-yield savings accounts, certificates of deposit (CDs), and money market accounts all advertise APY. Online banks typically offer higher APYs than traditional banks due to lower overhead. Treasury bills, I Bonds, and other government securities also have effective yields that can be expressed as APY for comparison.
When the Federal Reserve raises or lowers the federal funds rate, savings APYs follow. In high-rate environments, the difference between compounding frequencies becomes more pronounced. At 5%, the monthly-daily APY gap is about 1.05 basis points; at 10%, it grows to about 4.6 basis points.
APY (Annual Percentage Yield) reflects earnings with compounding — used for savings and investments. APR (Annual Percentage Rate) reflects borrowing costs including fees — used for loans. APY will always be ≥ the nominal rate; APR will always be ≥ the interest rate.
More frequent compounding means interest is calculated on a shorter period and added to the balance sooner, where it begins earning interest itself. Daily compounding yields slightly more than monthly, which yields more than quarterly or annually.
Yes, assuming all other terms are equal. A higher APY means more interest earned. However, consider withdrawal restrictions, FDIC insurance limits, minimum balance requirements, and account fees when comparing options.
Continuous compounding is the theoretical limit where interest compounds infinitely often. The formula is APY = e^r − 1. In practice, daily compounding is very close to continuous compounding and the difference is negligible for most rates.
No. APY only reflects the interest rate and compounding frequency. Account fees, maintenance charges, or penalties for early withdrawal are not included. Always check the full fee schedule alongside the APY.
At 5% for 1 year: annual compounding yields $500; monthly yields $511.62; daily yields $512.67. The difference is modest for one year but compounds significantly over longer periods. Over 20 years, the gap widens to hundreds or thousands of dollars.