Convert a nominal interest rate into its effective annual yield, based on how often it compounds.
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Effective Annual Yield
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Interest on $1,000 After 1 Year—
Formula
APY = (1 + APR / n)^n - 1, where n is the number of compounding periods per year.
Example
A 5% APR compounded daily produces an APY of about 5.13%, slightly higher due to more frequent compounding.
Not tax or financial advice. This calculator provides general estimates based on published 2026 figures. Always confirm important figures with the IRS, SSA, your state tax agency, a licensed lender, or a qualified professional.
Frequently Asked Questions
Why is APY higher than APR?
APY accounts for compounding within the year, so interest earned early in the year itself earns additional interest, making the effective yield higher than the stated rate.
Which one should I compare when shopping for accounts?
APY is the better figure for comparing accounts, since it reflects the true annual return including compounding effects.