APY Calculator
Compare effective annual yields across different compounding schedules
How to Use This Tool
Enter your initial deposit (principal), the advertised annual interest rate (APR), how often interest compounds, and your investment timeframe. Click Calculate to see the true annual percentage yield (APY), total interest earned, and final balance. The breakdown shows exactly how compounding boosts your returns versus simple interest. Use Reset to start a new comparison.
Formula and Logic
For discrete compounding (annually to daily):
APY = (1 + r/n)ⁿ - 1
Where r = annual interest rate (decimal), n = compounding periods per year.
Final balance: A = P × (1 + APY)ᵗ
For continuous compounding: APY = eʳ - 1, where e ≈ 2.71828.
The calculator also shows the "compounding effect"—the percentage difference between APY and APR—which quantifies how much more you earn from frequent compounding.
Practical Notes
APY is the standardized measure for comparing savings products because it accounts for compounding frequency. A 3% APR compounded daily yields ~3.04% APY, while the same APR compounded annually yields exactly 3%. Always compare APYs, not APRs, when shopping for savings accounts or CDs. Note that APY assumes no withdrawals; taking money out reduces compounding. Also, variable-rate accounts may have their APY change after opening. For loans, APR is more relevant as it includes fees; APY typically applies to deposit products.
Why This Tool Is Useful
This calculator reveals the hidden cost of infrequent compounding. For example, a "high-yield" savings account advertising 4.00% APR compounded monthly actually yields 4.07% APY—a small but real difference that grows with larger balances and longer terms. It helps you choose between products with different compounding schedules and understand how time amplifies compounding benefits. Financial planners use this to project growth for clients' emergency funds or down payment savings.
Frequently Asked Questions
Why is my APY higher than the APR?
APY includes the effect of compound interest—earning interest on previously earned interest. More frequent compounding (daily vs. annually) generates a higher APY for the same APR. The difference is the "compounding effect" shown in the results.
Should I always choose the highest APY?
Generally yes for savings products, but also consider accessibility, fees, and rate guarantees. A slightly higher APY with high monthly fees may net less than a lower APY with no fees. Also, check if the rate is introductory or variable.
Does APY account for taxes?
No. APY is pre-tax. Interest is typically taxable as ordinary income. Your after-tax return depends on your tax bracket. For tax-advantaged accounts ( Roth IRA, 401k), APY is more directly comparable since growth is tax-free.
Additional Guidance
Use this calculator when comparing: high-yield savings accounts, money market accounts, CDs, and bonds. For investments like stocks or mutual funds, use total return calculators that include dividends and price appreciation. Remember that APY assumes a full year of compounding; for partial years, use the formula A = P(1 + r/n)^(nt) directly. When budgeting, factor in that APY represents maximum potential if you make no withdrawals. Finally, during high inflation periods, even 5% APY may not preserve purchasing power—always compare APY to inflation rates.