Annual Percentage Yield (APY) Calculator

Calculate the effective annual rate of return on your investment, taking into account compound interest.

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1 APY Formula

2 How to Calculate APY

3 APY vs APR

4 APY - Practical Examples

Concept

APY Formula

The Annual Percentage Yield (APY) is calculated using the nominal interest rate and the number of compounding periods per year.

Formula:

APY = (1 + r/n)^n - 1

Where:

r = Nominal Interest Rate (as a decimal)
n = Number of compounding periods per year

Steps

How to Calculate APY

To calculate APY, follow these steps:

1
Convert the nominal interest rate to a decimal
2
Determine the number of compounding periods per year
3
Divide the nominal rate by the number of compounding periods
4
Add 1 to the result
5
Raise the result to the power of the number of compounding periods
6
Subtract 1 from the result
7
Convert the result to a percentage

Analysis

APY vs APR

What is APY?

APY (Annual Percentage Yield) represents the actual rate of return earned on an investment, taking into account the effect of compounding interest.

What is APR?

APR (Annual Percentage Rate) represents the nominal interest rate without taking into account the effect of compounding.

Key Differences

APY is typically higher than APR because it includes the effect of compounding. The more frequently interest is compounded, the greater the difference between APY and APR.

Examples

APY - Practical Examples

Example 1 Annual Compounding

Nominal Rate: 5%
Compounding: Annually

APY = (1 + 0.05/1)^1 - 1 = 5.00%

Example 2 Monthly Compounding

Nominal Rate: 5%
Compounding: Monthly

APY = (1 + 0.05/12)^12 - 1 = 5.12%

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