Formulas
APY = (1 + APR ÷ n)n − 1
APR = n × ((1 + APY)1/n − 1)
Continuous: APY = eAPR − 1
APR = n × ((1 + APY)1/n − 1)
Continuous: APY = eAPR − 1
Example: A 5% APR compounded monthly equals an APY of 5.1162%. A $10,000 deposit earns $511.62 in the first year, for a balance of $10,511.62.
Comparing savings accounts
- Compare APY with APY — it already includes compounding.
- Check whether the rate is promotional and for how long.
- High-yield savings rates change with the Federal Reserve; CDs lock a rate for a term.
Plan regular deposits toward a goal with the sinking fund calculator.
Frequently asked questions
What is the difference between APR and APY?
APR is the nominal yearly rate without compounding. APY (annual percentage yield) includes the effect of compounding, so it is the rate you actually earn in a year. APY is always equal to or higher than APR.
How do I convert APR to APY?
APY = (1 + APR ÷ n)^n − 1, where n is the number of compounding periods per year. A 5% APR compounded monthly is (1 + 0.05/12)^12 − 1 = 5.116% APY.
Does daily compounding make a big difference?
Not much compared with monthly: 5% APR is 5.116% APY monthly and 5.127% daily. The difference grows with higher rates.
Why does my credit card APR not show an APY?
U.S. lenders must disclose APR on loans and cards. Because card interest compounds daily, the effective yearly cost is higher than the APR.