APY Calculator
APY accounts for compounding and gives the true annual return on any savings account or investment. Convert APR to APY to compare accounts with different compounding schedules accurately.
APR vs APY
The Formula
APY = (1 + APR/n)^n − 1. Where n = number of compounding periods per year. A 5% APR compounded monthly = (1 + 0.05/12)^12 − 1 = 5.116% APY. The more frequently interest compounds, the higher the APY relative to APR.
Why Banks Use APR
Banks typically advertise the lower APR figure for savings accounts and the higher APY for investment products. Always compare APY when evaluating savings accounts — the compounding frequency makes a meaningful difference at higher balances.
Continuous Compounding
The theoretical maximum: e^r − 1 where e ≈ 2.71828. At 5% APR, continuous compounding gives APY = 5.127%. Most real-world accounts use daily or monthly compounding, which approaches but doesn't reach this maximum.
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