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 annual percentage yield it produces once compounding is applied. Enter the APR your bank quotes and an initial deposit, and it returns the APY under daily compounding, the APY under monthly compounding, and what your balance grows to over a year.
The point is comparison. Two accounts quoting the same nominal rate can pay different amounts depending on how often interest is credited, and two quoting different rates can pay the same. APY normalizes them so you can rank offers on one number rather than reading the fine print on each.
When to use it
Use it when a bank quotes you a nominal rate rather than an APY, which happens more often with CDs, business accounts, and promotional offers than with headline savings products. Converting to APY takes seconds and makes the offer directly comparable to everything else on the market.
It is also useful for reading an advertised APY backwards — if an account claims a 5.13 percent APY, you can see that it implies roughly 5 percent nominal compounded daily rather than a genuinely higher rate. And it settles the recurring question of whether daily compounding is worth chasing. Once you see the gap is about a tenth of a percentage point, that question stops taking up space.
Understanding the inputs
APR here means the nominal annual rate before compounding — the raw rate, not the effective yield. If you already have an APY figure, entering it will overstate the result, because the calculator will compound an already-compounded number.
Initial deposit simply scales the growth figure so you can see the effect in dollars rather than percentages. Nothing about the APY calculation depends on it: the same rate produces the same yield on $500 or $500,000. If your balance is near $250,000, that is the FDIC coverage limit per depositor per bank, and accrued interest counts toward it.
How is this calculated?
APY = (1 + r/n)^n − 1 where r = nominal rate, n = compounding frequency.
A worked example
Take a bank quoting 5 percent nominal on a high-yield savings account. Compounded monthly that is an APY of 5.116 percent; compounded daily it is 5.127 percent. On a $10,000 deposit, one year of daily compounding produces about $512.67 in interest, against $511.62 with monthly — a difference of roughly one dollar.
Now compare a competitor advertising 5.10 percent APY. That beats the 5 percent nominal account under monthly compounding but loses very slightly to it under daily. In other words, the two are effectively identical, and the deciding factors should be balance requirements, transfer speed, and whether the rate is promotional — not the third decimal place of the yield.
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 full year, which is not true of variable rate savings accounts — those can be repriced at any time, and often are within weeks of a Federal Reserve decision.
It also ignores tax, fees, minimum balance requirements, tiered rates, and promotional periods, all of which can matter more than the yield itself. It does not model deposits or withdrawals during the year. For a multi-year projection with regular contributions, use the compound interest calculator; for a fixed-term deposit, use the CD calculator.
Common Questions
- What is the difference between APR and APY?
- APR is the nominal annual rate before compounding; APY is what you actually earn once interest is credited and starts earning interest itself. A 5 percent APR compounded daily is a 5.127 percent APY. Deposit accounts are advertised in APY, loans in APR — which conveniently makes both look better.
- Which number should I compare accounts on?
- Always APY. It is the only figure that puts different compounding schedules on the same footing. A 5.05 percent rate compounded annually and a 5.00 percent rate compounded daily are effectively the same account. Federal Truth in Savings rules require banks to disclose APY, so it should always be available.
- How much does daily compounding actually add?
- On a 5 percent nominal rate, annual compounding gives 5.000 percent, quarterly 5.095, monthly 5.116, and daily 5.127. The whole range from annual to daily is about 0.13 percentage points, or $13 per $10,000 per year. Worth knowing, not worth switching banks for.
- Is there a limit to how much compounding helps?
- Yes, and it is closer than most people expect. Compounding continuously — the mathematical limit — on a 5 percent nominal rate produces 5.1271 percent, against 5.1267 for daily. The last four decimal places are all that infinite compounding buys you beyond daily.
- Does the APY on my savings account stay fixed?
- No. High-yield savings and money market accounts are variable rate, and banks reprice them whenever the Federal Reserve moves or competitive pressure changes. Only a CD locks the rate for its term. An APY quoted today is a snapshot, and after a rate-cutting cycle it can be a percentage point lower within months.
- How is APY affected by taxes?
- Substantially. Interest is taxed as ordinary income at your marginal federal rate plus any state tax. A 5 percent APY in the 24 percent federal bracket is about 3.8 percent after tax, and less again with state tax. Compare after-tax yields when weighing a savings account against municipal bonds or Treasuries.
- Is my money safe at the bank paying the highest APY?
- If it is FDIC insured, yes, up to $250,000 per depositor per bank per ownership category. Online banks offering the top rates carry identical coverage to large national banks. Verify the FDIC certificate rather than assuming, particularly with fintech apps that hold deposits through a partner bank.
- Why does my statement show a different rate than the advertised APY?
- Usually because of tiering or conditions. Many accounts pay the headline APY only above a balance threshold, or only if you meet direct deposit and debit card requirements, and pay a much lower rate otherwise. Some promotional APYs also apply only for an introductory period before reverting.
- Does APY apply to investments too?
- The term belongs to deposit accounts with a stated interest rate. Stock and fund returns are not APY — they are variable, can be negative, and are usually described as annualized return or CAGR. If something advertises a guaranteed APY well above prevailing savings rates, treat that as a warning rather than an opportunity.