Convert a nominal interest rate into true annual yield based on compounding frequency.
Convert a nominal interest rate into true annual yield based on compounding frequency.
Enter values above and click Calculate — results will appear here with the formula explained.
Two banks can quote the same nominal rate yet pay different interest, purely because of compounding frequency. APY — the effective annual rate — settles the comparison by answering: including compounding, how much does $100 become after exactly one year?
More frequent compounding nudges APY above APR. The effect is small at everyday rates (5% monthly-compounded becomes 5.116% APY) but grows with both rate and frequency, which is why promotional accounts love quoting whichever number flatters them more.
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Two banks can quote the same nominal rate yet pay different interest, purely because of compounding frequency. APY — the effective annual rate — settles the comparison by answering: including compounding, how much does $100 become after exactly one year? Formula: APY = (1 + APR/n)ⁿ − 1, where n = compounding periods per year
APY Calculator computes convert a nominal interest rate into true annual yield based on compounding frequency. Formula: APY = (1 + APR/n)ⁿ − 1, where n = compounding periods per year. Example: 5% APR compounded monthly yields (1 + 0.
Convert a nominal interest rate into true annual yield based on compounding frequency. Formula: APY = (1 + APR/n)ⁿ − 1, where n = compounding periods per year
| Field | What to enter |
|---|---|
| Nominal annual rate (APR) (%) | e.g. 5 |
| Compounding frequency | Enter a value |
All fields use the exact formulas shown below — results include step-by-step breakdowns you can verify by hand.
Two banks can quote the same nominal rate yet pay different interest, purely because of compounding frequency. APY — the effective annual rate — settles the comparison by answering: including compounding, how much does $100 become after exactly one year?
More frequent compounding nudges APY above APR. The effect is small at everyday rates (5% monthly-compounded becomes 5.116% APY) but grows with both rate and frequency, which is why promotional accounts love quoting whichever number flatters them more.
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5% APR compounded monthly yields (1 + 0.05/12)¹² − 1 = 5.116% APY. The same 5% compounded daily yields 5.127% — slightly better despite the identical headline rate.
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