APY Calculator
Convert nominal interest rate to APY (Annual Percentage Yield) for accurate comparison.
What this calculator does
This calculator converts a nominal annual rate into the effective yield it produces once compounding is applied — the figure UK providers must publish as AER. Enter the gross rate you have been quoted and an initial deposit, and it returns the effective yield under daily compounding, under monthly compounding, and what the balance grows to across a year.
The purpose is comparison. Two accounts quoting the same gross rate can pay different amounts depending on how often interest is credited, and two quoting different rates can pay the same. Reducing them to one effective figure lets you rank offers without reading each set of terms in full.
When to use it
Use it when a provider quotes a gross rate rather than an AER, which happens more often with fixed-rate bonds, business accounts, and notice accounts than with headline easy-access products. Converting to an effective yield makes the offer directly comparable with everything else in the market.
It is equally useful for reading an advertised AER backwards. An account claiming 5.12 percent AER is really paying 5 percent gross monthly, not a genuinely superior rate. And it settles the question of whether to chase daily compounding: once you can see the difference is about a tenth of a percentage point, you can stop weighing it and look at bonus periods and access terms instead.
Understanding the inputs
The rate field takes the nominal annual rate before compounding — the gross figure, not the AER. Entering an AER will overstate the result, because the calculator compounds a number that already includes compounding.
Initial deposit only scales the growth figure so you can see the effect in pounds rather than percentages. The yield itself is identical on £500 or £500,000. Two thresholds are worth keeping in view as you enter a balance: FSCS protection stops at £85,000 per person per banking licence, and at a 5 percent rate roughly £20,000 of savings generates £1,000 of interest, which is the full basic rate Personal Savings Allowance.
How is this calculated?
APY = (1 + r/n)^n − 1 where r = nominal rate, n = compounding frequency.
A worked example
Take a provider quoting 5 percent gross on an easy-access account. Credited monthly that is an effective 5.116 percent; credited daily it is 5.127 percent. On a £10,000 balance, a year of daily compounding produces about £512.67 in interest against £511.62 monthly — a difference of roughly one pound.
Now compare a Cash ISA at 4.6 percent AER. For a higher rate taxpayer who has already used the £500 Personal Savings Allowance, the 5 percent account pays £512 gross but only around £307 after 40 percent tax, so the ISA's £460 wins comfortably. For a basic rate taxpayer with allowance to spare, the taxable account keeps the full £512 and wins instead.
Limitations and assumptions
This calculator answers a narrow question precisely: what a given nominal rate yields over one year under a given compounding schedule. It assumes the rate holds for the whole year, which is not true of variable easy-access accounts — those can be repriced at any time, and introductory bonuses commonly fall away after twelve months.
It ignores tax, fees, minimum balance requirements, tiered rates, and withdrawal restrictions, any of which can matter more than the yield itself. It also models no deposits or withdrawals during the year. For a multi-year projection with regular contributions, use the compound interest calculator instead.
Common Questions
- What is the difference between a gross rate and AER?
- The gross rate is the nominal annual rate before compounding and before tax. AER, the annual equivalent rate, shows what you actually earn over a year once interest is credited and starts earning interest itself. A 5 percent gross rate paid monthly is an AER of about 5.12 percent.
- Which figure should I compare accounts on?
- Always AER. It is the only number that puts accounts with different interest payment schedules on the same footing, and FCA rules require providers to display it. A 5.12 percent gross rate paid annually and a 5 percent gross rate paid monthly are effectively the same account despite looking different.
- How much does more frequent compounding actually add?
- On a 5 percent nominal rate, annual crediting gives exactly 5 percent, quarterly 5.095, monthly 5.116, and daily 5.127. The entire range is about 0.13 percentage points, or £13 per £10,000 per year. Worth understanding when comparing, not worth switching provider for on its own.
- Should I take interest monthly or annually?
- If you leave it in the account, monthly interest compounds and produces the higher AER. If you withdraw it as income, monthly payment gives you cash flow but no compounding, so the gross rate is what you actually receive. Fixed-rate bonds usually offer both options at slightly different headline rates for exactly this reason.
- How does the Personal Savings Allowance affect my real return?
- Basic rate taxpayers can earn £1,000 of interest tax-free each year, higher rate taxpayers £500, and additional rate taxpayers nothing. At a 5 percent AER, £20,000 of savings generates £1,000 of interest — right at the basic rate limit. Above that, tax cuts a 5 percent AER to 4 percent for a basic rate taxpayer.
- Is a Cash ISA better than a higher-paying ordinary account?
- Only if you would otherwise pay tax on the interest. Compare after-tax yields: a 4.6 percent Cash ISA beats a 5 percent taxable account for a higher rate taxpayer who has used their £500 allowance, but loses to it for a basic rate taxpayer with room to spare. Recalculate whenever your balance or tax band changes.
- Is my money protected?
- FSCS protection covers £85,000 per person per authorised firm, and £170,000 for a joint account. The limit applies per banking licence rather than per brand, so two accounts with banks sharing a licence share one limit. Check the licence before splitting a large balance across what look like separate institutions.
- Why is my statement rate lower than the advertised AER?
- Usually because of bonus rates or conditions. Many easy-access accounts include an introductory bonus that drops off after twelve months, and some pay the headline rate only above a balance threshold or with a minimum number of monthly deposits. Diary the bonus expiry date when you open the account.
- What about Premium Bonds?
- Premium Bonds have no AER because they pay nothing guaranteed. NS&I quotes an annual prize fund rate, currently in the region of typical savings rates, but that is an average across all holders — most people with small holdings win less than the headline suggests. Prizes are tax-free, which suits savers who have used their allowance.