Convert nominal interest rate (APR) to effective annual rate (APY). Compare rates with different compounding.
Calculate effective annual rate from nominal rate.
Compare interest rates accurately with the Effective Rate Calculator. The effective rate (APY) accounts for compounding, giving you the true cost or return of an investment.
Banks advertise APR (Annual Percentage Rate), but you actually earn or pay APY (Annual Percentage Yield). The more frequently interest compounds, the greater the difference between the two. Understanding this helps you compare financial products fairly.
Where n = number of compounding periods per year.
12% APR compounded monthly: APY = (1 + 0.12/12)^12 - 1 = 12.68%. On $10,000, that's $1,268 earned vs $1,200 with simple interest.
| APR | Monthly | Daily |
|---|---|---|
| 5% | 5.12% | 5.13% |
| 10% | 10.47% | 10.52% |
| 12% | 12.68% | 12.75% |
| 20% | 21.94% | 22.13% |
Related tools: Compound Interest Calculator for growth projections, Interest Calculator for loan costs, and Savings Calculator for account comparisons.
APY = (1 + APR/n)^n - 1, where n = compounding periods. 12% APR compounded monthly: (1 + 0.12/12)^12 - 1 = 12.68% APY. More compounding = higher effective rate.
APR is simple annual rate. APY includes compounding effect. APY is always higher than APR (except annual compounding where they're equal). Compare savings using APY.
More frequent compounding means interest earns interest sooner. Daily compounding at 5% APR = 5.13% APY. Monthly = 5.12% APY. The difference grows with higher rates.