WHAT IS APY

APR to APY calculator

Initial deposit:

dollars per year

Annual percentage rate:

percent

Length:

or

months

years

Compound frequency: daily weekly bi-weekly monthly bi-monthly quarterly semi-annually annually

please select

Annual percent yield :

percent

Ending balance:

dollars

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Initial deposit

The starting balance for your certificate of deposit, savings account or investment. You are allowed to use comma for digit grouping and the decimal mark must be a dot. Please do not use currency symbol.

Annual percentage rate

This is the effective annual percentage rate earned. The APR depends on the periodic nominal interest rate and the number of periods per year. E.g. for a 1.50 percent monthly compounded interest rate the annual percentage rate will be 1.50 (periodic interest rate) * 12 (number of periods in a year), which equals 18.00 percent APR or for an annual interest rate of 6.35 percent the APR will be 6.35 * 1 = 6.35 percent.

Length

Enter the length of time in years or months for your investment. If you modify either of the input fields, the other one will be automatically populated with the correct data.

Compounding frequency

This calculator allows you to choose the compounding frequency of your investment. This is the frequency, when your earned interest income is added to your account.

Annual percentage yield

This is the effective annual percentage yield earned for this investment. APY depends on the frequency of compounding and the interest rate.

Ending balance

The account balance at the end of a period that reflects all transactions occurring during that period. This is the amount of money that you will have on your account at the end of your investment.

Definition of APY

The APY (annual percentage yield) or EAR (effective annual rate) is the representation of an interest rate, taking into account the effect of compounding interest based on a period of one year.

The federal government mandates that all CD (certificate of deposit) and saving accounts display the interest rate and its equivalent annual percentage yield as well.

APY is generally used to describe savings accounts or certificate of deposit rates - the rate paid to a depositor by a bank or financial institution.

APR to APY conversion

By now, you must have noted that banks and other financial institutions advertise their financial products with quoted APY when they are talking about CDs (certificate of deposit) and savings accounts and the mortgage and loan related products are advertised with quoted APR.

The main difference between the annual percentage rate and annual percentage yield is that the APR does not consider compounding, while the APY does. Compound means that the interest is added to the principal, and from that moment, not only the base principal, but the added interest earns interest as well.

Because of this, APR is naturally lower and APY is naturally higher. Since everybody wants higher interest rate on savings and lower interest rate on loans, this is why certificate of deposit and savings account related financial products mainly advertise annual percentage yield and mortgage or loan related products advertise annual percentage rate.

Let us compare two savings account offers. The first offer quotes a nominal interest rate of 6.00 percent and pays interest monthly, while the other one quotes 6.10 percent of annual percentage yield. If we enter these values into the apy calculator on the left, we will notice, that the 6.00 percent offer equals to 6.16778 percent APY. We know that there is no significant difference between the two offers, and almost every time the financial institutions will quote APY instead of APR, but still, the lower annual interest rate gave us a higher income return on an investment.

APR is the periodic interest rate multiplied by the number of periods in a year. The annual percentage rate for 1.50 percent monthly interest rate will be 1.50 * 12 = 18.00 percent.

APY considers compounding. To calculate APY, first we have to add 1 to the periodic interest rate (e.g. 1.015 if the monthly rate is 1.50 percent), then raise this sum to the number of periods in a year (this will be 12 in our case) and finally subtract 1 from the result.

In numbers: 18.00 percent nominal interest rate is 1.50 percent monthly interest rate, which is 0.015 (1.50 / 100); 0.015 + 1 equals 1.015; monthly compounding means, that we have 12 periods in a year, so we will have (1.015)^12, that equals 1.1956182; we subtract 1 from this to get 0.1956182, what is equal to 19.56182 percent.