APR to APY Converter

How to use APR to APY Calculator

1. 1
   Enter the rate you were quoted. Savings accounts usually quote APY and loans usually quote APR, so check which you are looking at.
2. 2
   Choose the compounding frequency. Monthly is the common default. Daily compounding raises the effective rate slightly further.
3. 3
   Read the gap on a real balance. The last lines show what compounding adds in cash over a year, which is the figure that matters.

About nominal and effective rates

The distinction between nominal and effective rates is the oldest source of confusion in consumer finance, and it exists because a rate is meaningless without knowing how often it is applied. An APR of twelve percent compounded monthly does not charge twelve percent once; it charges one percent twelve times, and because each charge lands on a balance that already includes the previous one, the year ends at 12.68 percent. That difference is the whole content of APY. Which figure gets advertised is not accidental. Savings products quote APY because it is the larger number, and lending products quote APR because it is the smaller one, so a saver comparing a headline savings rate against a headline loan rate is comparing two different measurements. The gap widens with both the rate and the frequency, which is why it is nearly invisible on a two percent savings account and substantial on a credit card: at 22.9 percent APR compounded monthly the effective rate is around 25.5 percent. Compounding frequency itself has diminishing returns — moving from monthly to daily adds very little, and the theoretical limit of continuous compounding adds barely more than daily. There is one further wrinkle worth knowing. In many jurisdictions the APR quoted on lending is legally required to include certain fees, which is what makes it a meaningful comparison between offers. No such requirement applies to savings, so an APY tells you about compounding and nothing about account charges.

Frequently asked questions