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APY (Effective Annual Yield) Calculator

How do I calculate APY?

How it is calculated

The effective annual yield is APY = (1 + r / n)n − 1, shown as a percentage. r is the nominal annual rate as a decimal (the tool divides your percent by 100) and n is the number of times interest is added per year: 1 for annual, 4 for quarterly, 12 for monthly, 365 for daily. The number of periods is cut to a whole number and must be at least 1; the rate cannot be negative. With n = 1 the APY equals the nominal rate, and as n grows the APY rises but flattens out. The result is the yield on the money itself before taxes, fees or inflation, which are not part of the formula.

Worked example

A savings account pays a nominal 5% compounded monthly. Rate per month: 0.05 / 12 ≈ 0.0041667. Growth over a year: (1 + 0.0041667)12 ≈ 1.05116. Subtracting 1 and multiplying by 100 gives an APY of 5.12%, slightly higher than the 5% label because each month's interest earns interest.

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Common mistakes

  • Typing the rate as 0.05 instead of 5; the tool already divides by 100.
  • Mixing up APR and APY: comparing a nominal rate on one account with an effective yield on another.
  • Entering n as the number of years rather than the number of compounding periods per year.
  • Entering a months count like 12 for an account that compounds daily (use 365).
  • Ignoring that fees, taxes and inflation reduce the real return that this figure does not account for.

Sources

About this calculator

This calculator converts a nominal annual interest rate into the effective annual yield (APY) by factoring in how often interest compounds during the year — daily, monthly or quarterly, for example — since compounding more frequently earns interest on interest sooner and produces a real return higher than the stated nominal rate.

It is used by savers comparing bank accounts or CDs that advertise the same nominal rate but compound on different schedules, since the account that compounds daily will actually pay out more than one compounding annually even with an identical stated rate — a difference that only becomes visible once you calculate the APY.

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Comments (1)

  • Editorial team

    Compounding frequency is the whole difference: 5 percent nominal compounded monthly (12) gives 5.12 percent APY, while yearly compounding (1) leaves it at 5.00. Daily is 365. A fraction is cut to a whole number. APY shows growth before fees, taxes and withholding, so what you keep can be lower. What compounding period does your account use?

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