APY calculator (annual percentage yield)
Convert a nominal annual rate into the effective yield (APY) based on the compounding frequency.
APY (effective rate) shows what you really earn in a year when interest is reinvested.
How the calculation works
APY (annual percentage yield, or effective rate) shows how much an investment really earns in a year when interest compounds more than once — not the headline (nominal) rate.
APY = (1 + rate ÷ n)ⁿ − 1
Where n is the number of compounding periods per year (12 monthly, 365 daily…). More frequent compounding means a higher APY versus the nominal rate.
Step-by-step example
Nominal 12%/yr, compounded monthly (n = 12):
- APY = (1 + 0.12/12)¹² − 1 = 12.68%/yr
What it's for
Comparing investments or loans with different compounding on a fair basis. Always compare APY with APY.
Examples
- 12%/yr compounded monthly: APY = 12.68%.
- 10%/yr compounded daily: APY ≈ 10.52%.
Frequently asked questions
Nominal vs effective rate?
The nominal rate ignores intra-year compounding; the effective rate (APY) includes it.
Is APY the same as APR?
No. APR (nominal) excludes compounding; APY includes it. Banks often quote APY on savings and APR on loans — not directly comparable.
Is daily compounding much better than monthly?
There is a difference, but small: at 12%/yr, monthly gives 12.68% and daily 12.75%. The big jump is annual to monthly.
Is 1% a month the same as 12% a year?
No, it is 12.68%, because the first month's interest starts earning too.
APY versus APR?
APY includes compounding; APR is usually nominal. Convert both to the same basis before comparing.
Does daily compounding beat monthly by much?
Barely. At 12% nominal, monthly gives 12.68% and daily 12.747%, with continuous compounding capped at 12.750%.
For loans, is the effective rate enough?
No. Mandatory insurance, fees and taxes matter — compare by total effective cost.
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Updated on June 18, 2026 · by Rafael Rossi · Methodology & sources