How to use this calculator
- Enter the Nominal annual rate quoted by the bank, such as 4.8.
- Choose the Compounding frequency from daily to annually. If unsure, the account terms will say.
- Enter your Deposit to see dollars as well as percentages.
- Read the APY and Interest after one year, and use the table to compare all frequencies.
APY versus the stated rate
A nominal rate (often called APR or stated rate) ignores the effect of compounding. APY, the annual percentage yield, includes it, so it shows what a balance really earns over twelve months.
APY = (1 + r/n)^n − 1- r = nominal annual rate as a decimal (4.8% = 0.048)
- n = number of compounding periods per year (365 daily, 12 monthly, 4 quarterly, 2 semi-annually, 1 annually)
Two accounts with the same nominal rate can have different APYs if one compounds more often. In the US, banks must quote APY on deposit accounts, which is why it is the right figure for comparing offers.
Example: 4.8% on a $20,000 deposit
Take a 4.8% nominal rate and $20,000. Compounded monthly, the APY is 4.91%, which earns $981.40 in a year and leaves a balance of $20,981.40. Compounded daily, APY is 4.92% and interest is $983.35.
The table shows how little frequency changes things: annual compounding gives exactly 4.80% ($960), semi-annual 4.86%, quarterly 4.89%. Going from annual to daily adds only about $23 on $20,000.
Using APY to compare accounts
Always compare APY with APY. An account quoting 4.85% compounded annually has an APY of 4.85%, while one quoting a lower 4.8% compounded daily has an APY of 4.92%, so the lower stated rate actually pays more. Converting both to APY removes that confusion.
Also check the conditions behind the rate: minimum balance, introductory periods, rate caps and whether the rate is variable. A variable rate can fall after you open the account, so the APY on the page is only a snapshot.
From APY to long-term growth
APY describes one year. Over several years, balances compound on top of each other, which you can project with the compound interest calculator. If you are saving toward a target, the savings goal calculator shows the monthly deposit.
APY also helps when you borrow, though loans quote an APR instead. A loan or credit card with monthly compounding costs more than its stated rate in the same way a savings account earns more.
Limits of the calculation
The calculator assumes the rate stays the same for the full year and that you make no deposits or withdrawals. It does not include account fees, which can erase a small yield advantage, or income tax on the interest.
Deposits at banks are typically insured up to limits set by the regulator, so check the insurance coverage of any institution you use. This page is an estimate for comparison, not a statement of what a specific account will pay.
Frequently asked questions
What is the difference between APY and APR?
APR is the stated rate without compounding, usually used for loans. APY includes compounding and is used for deposit accounts, so APY is always equal to or higher than the same rate expressed as APR.
Is a higher APY always better?
For the same deposit and period, yes, but also check fees, minimum balances and whether the rate is promotional or variable.
Why does compounding frequency change the yield?
Each time interest is added, the next period earns interest on a slightly larger balance. More frequent additions mean a slightly larger final balance.
How do I find the nominal rate from an APY?
Reverse the formula: r = n × ((1 + APY)^(1/n) − 1). For daily compounding, a 4.92% APY corresponds to about a 4.80% nominal rate.