APY ↔ APR Converter

The Conversion Formula

APR, or annual percentage rate, is the base interest rate without accounting for compounding. APY, or annual percentage yield, includes the effect of compounding, which is interest earning interest within the year. The formula connecting them is APY = (1 + APR/n)^n minus 1, where n is the number of compounding periods per year. For daily compounding, n is 365. For monthly, n is 12. Take an illustrative 4.25% APR compounded daily. The formula gives APY = (1 + 0.0425/365)^365 minus 1, which equals approximately 4.34%. The difference of 0.09 percentage points comes entirely from interest compounding on previously earned interest throughout the year. At higher rates, the gap widens. An 8% APR compounded daily produces an APY of roughly 8.33%, a gap of 0.33 points. The more frequent the compounding and the higher the rate, the larger the spread between APR and APY.

Why This Matters When Comparing Accounts

Banks and credit unions are required to disclose APY on deposit products, which makes comparison straightforward in theory. In practice, some promotional materials emphasize APR while the fine print shows APY, or vice versa. Credit card and loan advertising tends to feature APR, while savings and CD advertising leans toward APY. This can create confusion when you move between product types. When evaluating a savings account or CD offer, APY is the number you want. It tells you what you actually earn in a year after compounding. If two banks offer the same APY, you earn the same amount regardless of whether one compounds daily and the other compounds monthly. The compounding difference is already baked into the APY figure. Use the converter when you encounter a rate and are not sure which format it represents. Enter the number, select the compounding frequency, and read the equivalent on the other side.

This converter assumes a constant rate for the full year. Variable-rate accounts may change the APR during the year, which alters the effective APY you actually earn.