How to Use the APY Calculator
Enter APR and compounding frequency to get APY. Or enter APY to find the equivalent APR. Compare same APR at different compounding frequencies.
APY Calculator Formula
APY = (1 + APR/n)^n − 1n= Compounding frequency per yearAPR= Annual Percentage Rate (decimal)
Example Calculation
APR 8%, compounded monthly:
APY = (1 + 0.08/12)^12 − 1 = (1.00667)^12 − 1
APY = 8.30%
APR vs APY: The Difference That Costs You Money
APR and APY both describe an annual interest rate, but they are not the same number — and confusing them is how people misjudge loans and savings. APR (Annual Percentage Rate) is the simple, stated rate before compounding. APY (Annual Percentage Yield) is the effective rate after compounding is applied within the year. Whenever interest compounds more than once a year, APY is higher than APR. An 8% APR compounded monthly is actually an 8.30% APY — that extra 0.30% is the compounding working inside the year.
The rule of thumb: institutions advertise whichever number flatters them. Savings accounts and deposits are quoted in APY (the bigger number), while loans are often quoted in APR (the smaller number). To compare fairly, convert everything to the same basis.
How to Convert APR to APY
The conversion depends only on the rate and how often it compounds. The formula is APY = (1 + APR/n)^n − 1, where n is the number of compounding periods per year.
- Annual compounding (n=1): APY equals APR exactly.
- Quarterly (n=4): 8% APR becomes 8.24% APY.
- Monthly (n=12): 8% APR becomes 8.30% APY.
- Daily (n=365): 8% APR becomes about 8.33% APY.
Notice the diminishing returns — going from annual to monthly compounding adds meaningfully, but monthly to daily barely moves the number. This calculator does the conversion both ways: enter an APR and compounding frequency to get the APY, or enter an APY to find the equivalent APR.
Why Compounding Frequency Matters
Two deposits can advertise the same headline rate yet pay differently because of how often they compound. A 7% rate compounded daily yields more than 7% compounded annually. When you are comparing savings products, always compare the APY, not the stated rate — it is the only number that captures the real effect of compounding. Conversely, when comparing loans, the APR (plus any fees) tells you the honest cost. Matching like with like is the whole point of this tool.
A Quick Sanity Check
If a savings product quotes an APY that is wildly higher than its stated rate, check the compounding assumption — extremely frequent compounding produces only marginally higher yields, so a suspiciously large gap usually signals fine print or promotional teaser rates that expire. And remember that for borrowing, a low APR with frequent compounding and fees can cost more than a slightly higher APR with none. Convert to a common basis here before you decide, rather than trusting the marketed headline number.
Frequently Asked Questions
What is the difference between APR and APY?
APR is the stated annual rate without compounding. APY accounts for compounding within the year. The more frequently interest is compounded, the higher the APY relative to APR.
Sources
All calculations run in your browser and are provided for information only — they are not investment, tax or legal advice. Verify current rates and rules with the official source above before acting.