Convert a nominal interest rate into its Annual Percentage Yield, accounting for compounding frequency.
How It Works
How APY Calculator Works
A nominal rate says nothing about how often interest compounds, and more frequent compounding earns interest on interest sooner — the calculator applies the nominal rate over each compounding period, compounds that across a full year, and reports the true effective annual return as APY.
Worked Example
See It In Action
A 5% nominal rate compounded monthly actually yields about 5.116% over a year, since interest earned in January starts earning its own interest in February.
FAQ
Frequently Asked Questions
Why is APY always slightly higher than the nominal rate?
Because compounding lets interest earned early in the year start earning interest itself before the year is over — the more frequently that happens (daily beats monthly beats annually), the bigger the gap between nominal rate and APY becomes.
Which figure should I compare when shopping for a savings account?
Always compare APY, not the nominal rate — APY already accounts for compounding frequency, so it's the only number that lets you compare two accounts with different compounding schedules on equal footing.
