APY Calculator
The rate as quoted, before compounding
True annual yield (APY)
4.59%
4.50% nominal, monthly compounding
Balance in 5 yrs
$12,518
Compounding gain
$268
vs simple interest
Same deposit at simple interest would reach $12,250. Compounding adds $267.96 over 5 years — the APY is the honest number to compare across banks.
4.50% nominal — every frequency compared ($10,000 for 5 yrs)
| Compounding | APY | Ending balance |
|---|---|---|
| Annually | 4.50% | $12,462 |
| Quarterly | 4.58% | $12,508 |
| Monthly | 4.59% | $12,518 |
| Daily | 4.60% | $12,523 |
Higher rates and longer horizons widen the frequency gap; at low rates the differences are pennies.
Two accounts can both advertise "5%" and pay different amounts — the compounding frequency is the fine print that decides. This calculator converts any nominal rate to its true effective annual yield, lines up all four common frequencies, and projects what a deposit really grows to.
APR tells you the rate; APY tells you the truth. Regulation requires deposit accounts to disclose APY precisely so this comparison is possible — but ads still lead with whichever number looks better. Two accounts can both say "5%" and put different money in your pocket: the daily-compounding one pays slightly more than the annual one. Here's the conversion, for any rate and frequency you enter.
APY = (1 + APR/n)^n − 1- APR
- nominal annual rate as quoted
- n
- compounding periods per year (1, 4, 12, 365)
- APY
- effective annual yield — what you actually earn
Worked example: 5% nominal at each frequency
On $10,000 for one year at a 5% nominal rate: annual compounding pays $500.00, quarterly $509.45, monthly $511.62, daily $512.67. The spread from worst to best is $12.67 — real, but modest. Now stretch to 10 years: the monthly-compounded balance is $16,470 against $16,289 annually, and at a 10% nominal rate instead of 5%, the frequency gap widens further. Frequency matters more as rate and time grow.
| Compounding | Ending balance | APY |
|---|---|---|
| Annually | $10,500.00 | 5.000% |
| Quarterly | $10,509.45 | 5.095% |
| Monthly | $10,511.62 | 5.116% |
| Daily | $10,512.67 | 5.127% |
Why savers get APY and borrowers get APR
The disclosure rules are asymmetric by design: deposit products must show the larger, compounding-inclusive figure so savers are not misled, while loan products show the smaller nominal rate (with fees folded into a separate APR disclosure). The practical takeaway: when comparing deposits, APY is the only number that matters; when comparing loans, APR — not the headline rate — is the honest cost.
Reading savings-account offers honestly
- Promotional APY: a top rate for 3–12 months, then a step-down — compute the blended first-year rate before switching
- Tiered APY: the advertised rate may apply only to balances above a threshold; check the rate on your actual balance
- Conditions: some high rates require monthly deposits, a linked account, or no withdrawals
- Variable rates: savings APYs float with the policy rate — a figure true in October may not hold in April
| Years | Balance | Interest earned |
|---|---|---|
| 1 | $10,450 | $450 |
| 5 | $12,462 | $2,462 |
| 10 | $15,530 | $5,530 |
| 20 | $24,118 | $14,118 |
APY held constant; real rates vary year to year.
Sources & review
Reviewed by The Numberridge Editorial Team
Fact-checked · methodology documented
Every formula on this page is checked against the primary source documentation listed below before publication.
Last updated October 2026
Frequently asked questions
What is APY?
Annual percentage yield — the real one-year return including compounding. An account advertising 4.5% compounded monthly actually pays (1 + 0.045/12)^12 − 1 = 4.594% over a year. APY exists precisely so consumers can compare offers that compound at different frequencies.
What is the difference between APY and APR?
APY is used for deposits and includes compounding; APR is used for loans and generally excludes it. The asymmetry is regulatory: savers get the flattering (larger) figure, borrowers the unflattering (smaller) one — which is why fees make a loan's real cost higher than its APR.
How do I convert APR to APY?
APY = (1 + APR ÷ n)^n − 1, where n is compounding periods per year. Monthly compounding on 5% gives 5.116%; daily gives 5.127%. The gap widens with the rate: at 10% nominal, monthly compounding yields 10.47%.
Does compounding frequency matter much?
Less than marketing suggests. On $10,000 at 5% for one year, monthly compounding earns $511.62 and daily $512.67 — about a dollar. Frequency matters more over decades and at high rates, but the nominal rate itself does nearly all of the work.
Is a higher APY always the better account?
At equal balance and terms, yes. But check whether the rate is promotional (a few months only), tiered (top rate only above a large balance), or requires conditions like monthly deposits. The APY on the money you actually hold is the number that counts.
How is APY different from the return on investments?
APY is contractual: the bank must pay it. Investment returns are historical or expected, not guaranteed. That is why an emergency fund earns APY while long-term wealth usually needs market risk — comparing a 4.5% APY account to a 7% average equity return is comparing a promise to a probability.
How does interest compound on a savings account?
Most banks compound daily and credit monthly. Daily compounding means every day's interest starts earning interest the next day. The mechanics matter little; what matters is the APY and whether the rate applies to your whole balance.
Is APY before or after tax?
Before. Interest from savings accounts is ordinary income, taxed at your marginal rate — so a 4.5% APY is closer to 3.4% after a 25% combined rate. Municipal alternatives and retirement accounts change this math; the calculator shows pre-tax figures.
Still unsure? Ask us a question — we answer within two business days.
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