Convert a nominal interest rate into its effective annual yield (APY).
Calculated instantly in your browser.
How do you convert a nominal rate (APR) to APY?
APY = (1 + r ÷ n)ⁿ − 1, where r is the nominal rate and n the number of compounding periods per year; for continuous compounding, APY = eʳ − 1. Because each period earns interest on the previous interest, the effective rate exceeds the headline APR when interest compounds more than once a year. A 12% rate compounded monthly gives an APY of about 12.6825%.
Understanding your result
Because each compounding period earns interest on the previous interest, the effective rate is higher than the headline APR whenever interest compounds more than once a year.
Formula and method
APY = (1 + r ÷ n)ⁿ − 1, where r is the nominal rate and n the number of compounding periods per year. For continuous compounding, APY = eʳ − 1.
Worked example
A 12% nominal rate compounded monthly gives an APY of about 12.6825%.
How to use this tool
- Enter the nominal annual rate (APR).
- Choose how often it compounds.
- Read the effective annual rate (APY).
Common mistakes to avoid
- Comparing two rates without matching their compounding frequency.
- Confusing APR (nominal) with APY (effective).
About the APY Calculator (Effective Annual Rate)
The APY Calculator converts a nominal interest rate (APR) into the effective annual rate — the true yearly yield once compounding is taken into account. The more often interest compounds, the higher the APY.
Who should use this tool
Savers and borrowers comparing accounts or loans quoted at different compounding frequencies.
Benefits
- Compare rates on a true, like-for-like basis.
- See the gap between nominal APR and effective APY.
- Supports daily through continuous compounding.
- Private and instant.
Practical use cases
- Comparing two savings accounts with different compounding.
- Understanding the real cost of a loan’s APR.
- Converting a monthly rate to an annual yield.
Frequently asked questions
What is the difference between APR and APY?
APR is the nominal yearly rate; APY is the effective rate after compounding. APY is always equal to or higher than APR.
Which compounding gives the highest APY?
For a given nominal rate, more frequent compounding gives a higher APY, with continuous compounding being the maximum.