APY Calculator
How It Works
APY at Different Compounding Frequencies
For a 5.00% nominal annual rate:
Tips
- When comparing savings accounts, always compare APY — not the stated interest rate. APY already factors in compounding and gives the true annual return.
- High-yield savings accounts (HYSAs) and money market accounts often pay 10–20× the national average APY. Shop rates before opening a new account.
- Compounding frequency matters more at higher rates. At 1%, daily vs. annual compounding adds less than $1 per $1,000. At 10%, it adds $5.
Frequently Asked Questions
What is APY?
APY (Annual Percentage Yield) is the effective annual rate of return accounting for compounding within the year. If a bank pays 5% interest compounded monthly, the APY is actually 5.116% — slightly higher because each month's interest earns interest in subsequent months.
What is the difference between APY and APR?
APR (Annual Percentage Rate) is the nominal rate without compounding. APY includes the effect of compounding. For savings accounts, banks advertise APY because it is higher and more attractive. For loans, they often advertise APR. Always compare the same metric when shopping rates.
Which compounding frequency gives the highest return?
More frequent compounding produces a higher effective yield for the same nominal rate. Daily compounding gives slightly more than monthly, which gives more than annual. The difference is small at typical interest rates — the gap between daily and monthly at 5% is only about 0.002%.
What is continuous compounding?
Continuous compounding is the theoretical limit of compounding infinitely often. The formula is A = Pe^(rt) where e ≈ 2.71828. In practice, no bank compounds continuously — daily is the most frequent you will encounter.