Convert an interest rate into its annual percentage yield (APY) for any compounding frequency, and see how much interest a deposit will earn in a year.
What is APY?
Annual percentage yield (APY) is the real return on savings over one year, including the effect of compounding, meaning interest earning interest. Banks advertise savings accounts and CDs using APY, which makes them easy to compare.
APY = (1 + r ÷ n)n − 1
Here r is the stated annual rate and n is the number of times interest compounds each year.
Worked example
An account pays 4.5% compounded daily. Its APY is (1 + 0.045 ÷ 365)365 − 1 = 4.602%. On a $10,000 deposit, that is about $460.25 of interest in a year. With monthly compounding, the APY would be 4.594%.
How much does compounding frequency matter?
Less than you might think. Going from yearly to daily compounding adds only about a tenth of a percentage point at typical savings rates. The rate itself matters far more, so compare APYs and choose the highest you can get from a safe, insured account.
Frequently asked questions
APY or APR: which should I compare?
For savings, compare APY. For loans, compare APR, which includes fees. See the APR calculator.
Is APY guaranteed?
For CDs, usually yes for the term. For savings accounts, the rate can change at any time.
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Results are estimates for planning and education only. They are not financial, tax, legal or medical advice. Check important numbers with a qualified professional.