What This Tool Does
This APY calculator converts any nominal APR into the true annual percentage yield using the standard compounding formula. It supports daily, monthly, quarterly, annual, and continuous compounding — making it the only comparison metric you need when evaluating savings accounts, CDs, or money market offers. Enter a starting balance and time horizon to see projected interest earned, not just a percentage.
How to Get Accurate Results
- Enter the exact APR from your bank's rate disclosure, not a rounded figure. A 4.95% vs 5.00% APR produces a measurable difference over multi-year horizons.
- Match the compounding frequency to what your institution actually uses. Most high-yield savings accounts compound daily; CDs vary by bank. Check the account terms.
- Use decimal years for partial periods (e.g., 0.5 for six months) to compare short-term CD rates against annual savings account yields on equal footing.
Methodology
For periodic compounding, the calculator applies APY = (1 + APR/n)^n − 1, where n is the number of compounding periods per year. For continuous compounding, it uses APY = e^APR − 1. The growth projection multiplies your principal by (1 + APY)^years to produce an ending balance. Interest earned is the difference between ending balance and principal. This approach isolates the compounding effect so you can compare two accounts with different compounding schedules on a single standardized metric. The growth examples table applies the same APY across 1, 3, 5, and 10-year horizons to illustrate how compounding accelerates returns over time.
Real-World Application
Treasury managers at small businesses use APY comparison to allocate idle cash between a daily-compounding money market and a quarterly-compounding CD ladder. By converting both to APY, they can quantify the exact dollar difference on a $500K reserve over 12 months and justify the liquidity trade-off to stakeholders.
Frequently Asked Questions
What is APY (Annual Percentage Yield)?
APY is the effective annual rate of return you earn on a deposit account or investment when compounding is included. Unlike a simple interest rate, APY accounts for how often interest is added to the balance (daily, monthly, quarterly, etc.). Because compounding increases your balance throughout the year, APY is usually slightly higher than the stated APR for savings products.
APR vs APY: what is the difference?
APR is a nominal annual rate that does not include the effect of compounding. APY includes compounding, so it represents the true yearly yield. For savings accounts and CDs, banks often advertise APY because it reflects what you actually earn. For loans, lenders often emphasize APR or interest rate; in that context, compounding can still matter, but APR disclosures are used for standardized comparisons.
How do you convert APR to APY?
To convert APR to APY for periodic compounding, you use: APY = (1 + APR/n)^n − 1, where n is the number of compounding periods per year. For continuous compounding, APY = e^APR − 1. This calculator applies those formulas and returns the result as a percentage.
Does compounding frequency make a big difference?
Usually the difference is modest, but it becomes more noticeable as rates increase. Daily compounding produces a slightly higher APY than monthly compounding at the same APR. When comparing two bank accounts, always compare APY rather than APR so you are comparing the true yield.
Is a higher APY always better?
A higher APY is generally better for earnings, but consider account requirements and limits. Some accounts require minimum balances, direct deposit, or have tiered rates. If the top APY only applies to a small balance, your effective return may be lower. Use APY as a starting point, then verify the account terms.
Is APY the same as CAGR?
Not exactly. APY is the effective annual yield based on a stated rate and compounding frequency. CAGR (compound annual growth rate) is a realized growth rate over multiple years based on a starting value and ending value. APY can be used to project growth, while CAGR describes actual past performance.
About the Creator
Tool developed by Tyler, founder of ToolVault. Building professional-grade web utilities since 2025 to help creators and business owners make data-driven decisions. This tool is designed for private, browser-based accuracy.