APY Calculator
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When shopping for a High-Yield Savings Account (HYSA) or a Certificate of Deposit (CD), banks often display two different rates: the interest rate (APR) and the Annual Percentage Yield (APY). While the base interest rate tells you the raw interest percentage, the APY tells you how much money you will actually earn after accounting for interest compounding over a full year.
Our free APY Calculator helps savers and investors measure true interest growth. By entering your nominal interest rate (APR) and compounding frequency, you can compare bank offers and see how much cash your savings will generate.
How to Calculate APY from APR
The APY formula calculates the effective annual rate earned on an investment when interest is compounded periodically (daily, monthly, quarterly, or annually).
The APY Formula:
APY = (1 + r / n)ⁿ - 1
- r: Stated nominal annual interest rate (APR) expressed as a decimal (e.g., 5.0% = 0.05).
- n: Number of compounding periods per year (e.g., Daily = 365, Monthly = 12, Quarterly = 4, Annually = 1).
APR vs. APY: What is the Difference?
Understanding the distinction between these two financial metrics prevents costly banking mistakes:
| Metric | Interest Compounding Included? | Where It Is Used |
|---|---|---|
| APR (Annual Percentage Rate) | No. Measures simple interest without compounding. | Consumer loans, credit cards, mortgages, auto loans. (Lower number benefits borrowers). |
| APY (Annual Percentage Yield) | Yes. Measures total interest earned including compounding effect. | Savings accounts, HYSAs, CDs, money market accounts. (Higher number benefits savers). |
Step-by-Step Example Calculation
Imagine depositing $10,000 into a High-Yield Savings Account offering a 5.00% APR that compounds interest daily (n = 365).
Let’s calculate the effective APY:
APY = (1 + 0.05 / 365)³⁶⁵ - 1
APY = (1 + 0.000136986)³⁶⁵ - 1 = (1.05127) - 1 = 0.05127 = 5.13%
Because of daily compounding, your effective APY is 5.13%. At the end of 12 months, your $10,000 deposit will have earned $512.70 in total interest ($12.70 more than simple interest alone).
Frequently Asked Questions (FAQ)
Why does daily compounding pay more than annual compounding?
When interest compounds daily, the interest earned today is added to your account balance tomorrow morning. On day two, you earn interest on both your original deposit AND on yesterday’s interest. The higher the compounding frequency, the faster your balance grows.
Can APY change over time?
For standard high-yield savings accounts (HYSAs), yes. HYSAs have variable rates tied to the Federal Reserve’s federal funds rate. However, for a Certificate of Deposit (CD), the APY is locked for the entire term (e.g., 12 months).
Is APY interest taxed?
Yes. Interest income earned from savings accounts and CDs is taxable as ordinary income in the US and must be reported on IRS Form 1099-INT if you earn more than $10 in a tax year.