How it's calculated
APY = (1 + APR ÷ n)ⁿ − 1
APR = nominal annual rate (as a decimal), n = compounding periods per year, APY = effective annual yield. Continuous compounding: APY = e^APR − 1. Final balance = P × (1 + APR/n)^(n·years).
Worked examples
| APR | Compounding | APY |
|---|---|---|
| 5% | annual | 5.000% |
| 5% | monthly | 5.116% |
| 5% | daily | 5.127% |
| 10% | monthly | 10.471% |
Common questions
What is the difference between APR and APY?
APR is the simple nominal rate, while APY includes the effect of compounding, so APY is always equal to or higher than APR.
Why do banks advertise APY on savings?
The Truth in Savings Act requires it, because APY reflects what you actually earn after compounding and lets you compare accounts fairly.