APY Calculator \

How APY Is Calculated

The formula is APY = (1 + APR/n)ⁿ − 1, where APR is the stated annual rate and n is the number of compounding periods per year. Daily compounding (n = 365) produces a slightly higher APY than monthly (n = 12), which in turn beats quarterly (n = 4). At an illustrative 5.00% APR, the resulting APY is approximately 5.13% with daily compounding, 5.12% with monthly, and 5.09% with quarterly.

Federal Reserve Regulation DD, known as the Truth in Savings Act, requires banks to disclose APY so consumers can compare deposit products without doing the conversion themselves. Still, some offers advertise only an APR or a nominal rate, which can make a lower-compounding product look equivalent to a higher-compounding one. The calculator handles the conversion in either direction — enter an APR to get the APY, or enter an APY to see what underlying nominal rate it implies.

When the APY Number Matters Most

APY matters most when you are choosing between two accounts with different compounding frequencies. Two accounts both advertising a 5.00% rate can produce different results if one compounds daily and the other monthly. On a $50,000 balance over five years, that seemingly tiny difference adds up to several dozen dollars — not dramatic, but free money you would otherwise leave behind.

The number also helps you evaluate promotional rates. A bank offering an illustrative 5.50% APY for three months that then drops to 4.00% has a blended yield you can estimate by running each period separately in the calculator. This kind of scenario analysis is where the tool earns its keep, because mental math with compounding is notoriously unreliable. For a deeper dive into the distinction, see the APY vs APR calculator.

APY assumes interest is reinvested. If you withdraw interest periodically, your effective yield will be lower than the APY shown.