APR to APY Calculator
Enter a nominal annual interest rate (APR) and how often it compounds to calculate the effective annual yield (APY) — the rate that actually reflects what you earn or pay once compounding is factored in.
How the APR to APY formula works
The APR-to-APY conversion:
APY = ( (1 + APR/n)^n − 1 ) × 100
Where n is the number of compounding periods per year. APY is always equal to or greater than the stated APR whenever compounding happens more than once a year.
Step-by-step calculation
- Divide the APR by the number of compounding periods per year to get the rate per period.
- Add 1, then raise the result to the power of the number of compounding periods.
- Subtract 1 and multiply by 100 to express APY as a percentage.
Worked example
A 5% APR compounded monthly: APY = (1 + 0.05/12)^12 − 1 ≈ 0.05116, or about 5.12% — slightly higher than the stated 5% APR due to monthly compounding.
Frequently asked questions
Why is APY always higher than APR (or equal)?
APY accounts for interest earning interest within the year, while APR is just the simple stated annual rate before compounding is applied. The more frequently interest compounds, the larger the gap between APR and APY becomes.
Which rate should I compare when shopping for savings accounts or loans?
APY is the more accurate figure for comparing what you'll actually earn on savings, since it already reflects compounding — that's why banks are required to advertise APY for deposit accounts.