Enter a nominal annual rate and how often it compounds to find the true annual percentage yield.

APY versus the stated rate

The annual percentage yield, or APY, is the true yearly return on savings once compounding is included. It is always a little higher than the nominal rate the bank advertises, because interest paid during the year starts earning interest itself. A 5 percent rate compounded monthly is really about 5.12 percent in your pocket.

APY exists so that savers can compare accounts fairly, regardless of how often each one compounds. Do not confuse it with APR, which is a borrowing figure and may include fees rather than compounding. When choosing where to keep savings, APY is the number to line up side by side.

The formula

Worked example

A 5% nominal rate compounded monthly is an APY of about 5.116%.

How to read your result

APY shows the real yearly return once compounding is taken into account, which is why it is higher than the stated nominal rate. It lets you compare savings accounts on an equal footing.

Frequently asked questions

Why is APY higher than the nominal rate?

Because compounding earns interest on interest within the year.

Is APY the same as APR?

No. APY reflects compounding on savings; APR is a stated borrowing rate that may exclude compounding.

Which should I compare accounts on?

APY, since it captures the true effect of compounding.

Related calculators

Compound Interest CalculatorSimple Interest CalculatorInvestment CalculatorLoan Payment CalculatorPercentage Calculator

Roxish — free, formula-transparent calculators for school, work, and everyday decisions.