How to use the APY Calculator
- Enter the nominal annual interest rate as advertised.
- Choose the compounding frequency — daily, monthly, quarterly or annually.
- Read the APY, then compare it directly against another account's APY.
- Use the balance field, where available, to see the actual interest in currency terms.
How the calculation works
A nominal rate says nothing about when interest is credited. Credit it monthly and each month's interest starts earning interest of its own, so the year's total exceeds the nominal figure. APY captures that by compounding the periodic rate through a full year and expressing the result as a single percentage.
The gap grows with the rate: at 1% the difference between annual and daily compounding is negligible, while at 10% it is meaningful. This is also why a bank advertising a nominal rate alongside a competitor's APY is not offering a like-for-like comparison.
APY = (1 + r/n)^n − 1 where r = nominal annual rate and n = compounding periods per yearSource: Effective annual rate definition; US deposit accounts must disclose APY under Regulation DD (Truth in Savings Act).
Worked example
An account advertises 4.35% nominal, compounded daily on a 365-day year.
- Periodic rate = 0.0435 / 365 = 0.00011918.
- (1 + 0.00011918)^365 ≈ 1.044459.
- Subtract 1 to get the effective yield.
APY ≈ 4.446%. On a 12,000 balance held all year that is about 534 of interest, versus 522 with annual compounding.
Frequently asked questions
What is the difference between APY and APR?+
APY describes what you earn on savings including compounding; APR describes what borrowing costs and includes fees but not compounding of the same kind. They are not interchangeable.
Why does my bank credit less interest than the APY suggests?+
APY assumes the full balance stays for a whole year. Deposits and withdrawals mid-year, or a promotional rate that expires, both reduce the actual interest credited.
Is a higher compounding frequency worth switching banks for?+
Rarely on its own. The frequency difference is usually a few hundredths of a percent, while rate differences between accounts are often a full percentage point or more.
Do variable savings rates invalidate the APY?+
A quoted APY reflects the rate at the moment of quoting. On a variable account the bank can change the rate at any time, so treat the APY as current rather than guaranteed for the year.
Last reviewed August 31, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.