APY Calculator

How It Works

APY — annual percentage yield — is the true yearly return on a savings account once compounding is included. Banks quote a nominal rate, but the interest you actually earn depends on how often that interest is added to your balance and starts earning interest itself. The formula is APY = (1 + r ÷ n)ⁿ − 1, where r is the nominal annual rate and n is the number of compounding periods per year. The more often interest compounds, the higher the APY — even though the quoted rate never changes.

That is why APY is the number to compare when choosing between accounts. A 4.00% rate compounded annually is exactly 4.00% APY. The same 4.00% compounded monthly is 4.0742% APY, and compounded daily it is 4.0808% APY. The differences look small, but they are real money: on a $10,000 deposit over one year, monthly compounding earns $7.42 more than annual compounding, and daily compounding earns $8.08 more. Over longer periods and larger balances, the gap grows — and when two accounts quote the same nominal rate, the one that compounds more often always wins.

Compounding also explains why the APY figure, not the nominal rate, is what banks are required to show in the prominent position in their advertising. Two accounts with different nominal rates and different compounding frequencies can only be compared fairly through APY. If an account quotes a high nominal rate but compounds annually, and another quotes a slightly lower rate but compounds daily, the APY tells you which one actually pays more.

APY is not just a convenience — in the United States it is the figure banks are required to disclose. Under the Truth in Savings Act (Regulation DD), banks must state the APY prominently in advertising and account disclosures, precisely so that savers can compare accounts with different compounding frequencies on equal footing.

What a $10,000 deposit earns in one year at a 4.00% nominal rate:

Notice how the gains shrink as compounding gets more frequent: moving from annual to monthly adds $7.42, but moving from monthly to daily adds only $0.66. Beyond monthly compounding, the extra return is tiny — the rate itself matters far more than the frequency.

The rate itself matters far more than the frequency, and the table below makes the comparison concrete. It holds compounding fixed at monthly and varies the nominal rate, on the same $10,000 deposit over one year:

Each extra point of nominal rate is worth roughly $103 to $105 a year per $10,000 saved — compare that with the $7.42 a year that switching from annual to monthly compounding is worth at 4%, and the priority is clear: chase the rate first, and treat compounding frequency as a tie-breaker between accounts that quote the same rate.

Worked Example

A $10,000 deposit at a 4.00% nominal rate compounded monthly: the APY is (1 + 0.04 ÷ 12)¹² − 1 = 4.0742%. After one year the balance is $10,000 × 1.040742 = $10,407.42, so the interest earned is $407.42. The same deposit at the same nominal rate compounded annually would be worth $10,400.00 after a year — $7.42 less. Over 5 years the monthly-compounded balance grows to $10,000 × 1.040742⁵ = $12,209.97, earning $2,209.97 in total, while annual compounding would reach $12,166.53 — a gap of $43.44 that comes purely from compounding frequency.

A second example, with a higher rate and daily compounding: a $5,000 deposit at a 5.00% nominal rate compounded daily. The APY is (1 + 0.05 ÷ 365)³⁶⁵ − 1 = 5.1267%. After 3 years the balance is $5,000 × 1.051267³ = $5,809.11, so the interest earned is $809.11. The same deposit at the same nominal rate compounded annually would be worth $5,788.13 after 3 years — $20.98 less. The gap grows with time and balance, which is why compounding frequency matters more for long-term savings than for money you will spend within the year.

Assumptions

• The nominal rate stays fixed for the whole period. Real savings rates are variable and change with the market.
• No deposits or withdrawals during the period, and no fees. Fees reduce the effective return.
• Tax on interest is not included, which reduces the after-tax return.
• Daily compounding is calculated as 365 periods per year; some banks use 360-day years, which gives a marginally different result.
• Interest is reinvested rather than withdrawn. Withdrawing interest as it is paid stops the compounding effect.
• The rate applies to your whole balance. Some accounts pay different rates on different balance tiers, or pay a higher rate only up to a cap — for those, run the calculator separately for each tier.

Sources: APY formula (1 + r/n)ⁿ − 1, where r is the nominal annual rate and n is the number of compounding periods per year; US Consumer Financial Protection Bureau — Regulation DD (Truth in Savings Act), which requires banks to disclose APY. No bank rates are quoted on this page. Last reviewed: 13 November 2026.

How to Use This Calculator

Enter the nominal annual rate the bank quotes and how often it compounds, then add your deposit and the number of years. The calculator shows the true APY, the future value of your deposit, and the interest earned — plus the APY the same rate would give with annual and daily compounding, so you can see exactly what the frequency is worth. Use the Reset button to return to the 4.00% monthly example.

Tips and Practical Advice

When comparing accounts, compare APY to APY and ignore the nominal rate entirely — APY is the only figure that puts different compounding frequencies on equal footing. A 0.10% APY difference is worth $10 a year per $10,000 saved, so on a large emergency fund or house deposit, even small gaps add up. But do not chase frequency: the difference between monthly and daily compounding at the same rate is a few cents per $1,000 per year. What matters is the rate, whether it is a fixed or variable rate, and whether the account has fees or minimum-balance requirements that quietly eat the return.

Also check whether a quoted rate is an introductory rate. Some accounts pay a high rate for a few months and then drop to a much lower one, and the APY in the headline is often the introductory figure. The calculator assumes a fixed rate, so for an account like that, run the numbers twice — once at the introductory rate for the short period, and once at the ongoing rate — to see the real blended return.

Watch for tiered rates and minimum balances, too. An account may advertise its best APY only on balances above a threshold, or pay a lower rate on the part of your balance above a cap. If your deposit sits near a tier boundary, a small change in balance can move your whole return — run the calculator at each tier’s rate to see what you would actually earn.

Frequently Asked Questions