APY / APR Converter
Turn a nominal interest rate (APR) into the true effective annual yield (APY) for a given compounding frequency — so you can compare accounts fairly.
Why APR and APY differ
A nominal rate (often quoted as APR) states the yearly rate before accounting for how often interest is added. The effective annual yield (APY) is what you actually earn once interest compounds during the year: APY = (1 + APR ⁄ n)ⁿ − 1, where n is the number of compounding periods per year.
The more often interest compounds, the higher the APY for the same nominal rate, because you earn interest on interest sooner. A 5% nominal rate is worth about 5.00% compounded annually, roughly 5.12% compounded monthly, and about 5.13% compounded daily.
For savings, APY is the honest number to compare — it's why deposit accounts are required to advertise it. For borrowing, lenders quote APR, which also bundles in certain fees. This converter handles the compounding maths; it does not include fees, so a loan's real cost can be higher than the rate alone implies.
Frequently asked questions
Is a higher APY always better for savings?
For the return itself, yes — a higher APY means more interest for the same balance. But also weigh fees, minimum balances, and access terms, which the rate alone doesn't capture.
Why do banks advertise APY but lenders advertise APR?
APY shows the true yield you earn on a deposit including compounding, which favours savers' clarity. APR shows a borrowing cost including certain fees; the two describe the same underlying rate from different sides.
Does compounding frequency really matter?
A little. Going from annual to daily compounding on a 5% rate adds only about 0.13 percentage points of yield. It matters more at higher rates and over long horizons.
Does APR include fees?
For loans, APR includes certain required fees as well as interest, so it can exceed the nominal rate. This converter works on the rate and compounding only — check a lender's full APR disclosure for the all-in cost.
