Effective Interest Rate (APY) Calculator
Two deposits can advertise the same "8%" and pay different amounts, because how often interest compounds changes what you actually earn. The effective annual yield (APY) is the honest, comparable number.
This calculator converts any nominal rate into its effective yield for your compounding frequency, so you can compare products on a level footing and see exactly how much the compounding adds.
A nominal 8% compounded monthly yields an effective 8.30% a year — compounding adds 0.30 points.
How it works
- 01APY = (1 + nominal ÷ n)^n − 1, where n is how many times a year interest is credited.
- 02More frequent compounding raises the effective yield — but the effect is small next to the rate itself.
- 03"Added by compounding" is the gap between the effective yield and the nominal rate.
Frequently asked
Nominal or effective rate — which should I compare?+
Always the effective rate (APY). It folds in compounding frequency, so two products are directly comparable. Nominal rates can mislead when frequencies differ.
How much does daily vs yearly compounding matter?+
Less than most people think. At 8%, yearly compounding yields 8.00% and daily about 8.33% — real, but far smaller than the difference a higher rate makes.