APY Calculator
Convert a nominal interest rate to Annual Percentage Yield (APY) based on compounding frequency.
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APY (Monthly (12×))
5.1162%
vs 5% nominal rate (+0.1162%)
Comparison by Compounding Frequency
| Frequency | APY | Difference |
|---|---|---|
| Daily (365×) | 5.1267% | +0.1267% |
| Monthly (12×) | 5.1162% | +0.1162% |
| Quarterly (4×) | 5.0945% | +0.0945% |
| Semi-annually (2×) | 5.0625% | +0.0625% |
| Annually (1×) | 5.0000% | +0.0000% |
What Is APY?
Annual Percentage Yield (APY) is the real rate of return on an investment or savings account, taking into account the effect of compounding interest. Unlike the nominal interest rate, which is simply the stated rate, APY reflects how much you actually earn over a year when interest is compounded at regular intervals.
The formula is: APY = (1 + r/n)^n − 1, where r is the nominal annual interest rate and n is the number of compounding periods per year. The more frequently interest compounds, the higher the APY compared to the nominal rate.
When comparing savings accounts or investment products, always compare APY rather than the nominal rate. A savings account offering 5% compounded daily will yield slightly more than one offering 5% compounded annually, even though both advertise the same nominal rate.
Banks and financial institutions in the UK are required to display APY (sometimes called AER — Annual Equivalent Rate) so consumers can make fair comparisons between products.
Frequently Asked Questions
What is the difference between APY and APR?
APY (Annual Percentage Yield) includes the effect of compounding and is used for savings/investments. APR (Annual Percentage Rate) is used for loans and does not include compounding effects.
Is a higher APY always better?
For savings and investments, yes — a higher APY means more earnings. For loans, a higher APR means more interest paid, so lower is better.
What is AER?
AER (Annual Equivalent Rate) is the UK equivalent of APY. It represents the interest rate if it were paid and compounded once per year, allowing fair comparison between products.
Does daily compounding make a big difference?
For small amounts over short periods, the difference is minimal. Over decades with large sums, daily compounding can add up to a significant amount compared to annual compounding.