Home
Back
APY Formula:
| From: | To: |
APY (Annual Percentage Yield) represents the real rate of return earned on a savings account or investment, taking into account the effect of compounding interest. It provides a more accurate measure of earnings than the nominal interest rate.
The calculator uses the APY formula:
Where:
Explanation: The formula calculates the effective annual rate of return when interest is compounded multiple times throughout the year.
Details: APY helps consumers compare different savings and investment products by showing the actual return they can expect to earn, accounting for compounding frequency. A higher APY means better returns on your savings.
Tips: Enter the nominal interest rate as a decimal (e.g., 0.05 for 5%) and the number of times interest compounds per year. Both values must be positive numbers.
Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) represents the simple interest rate without compounding, while APY includes the effect of compounding, making it a more accurate measure of actual earnings.
Q2: How does compounding frequency affect APY?
A: More frequent compounding results in a higher APY. For example, monthly compounding will yield a higher return than annual compounding at the same nominal rate.
Q3: What is a good APY for savings accounts?
A: APY rates vary by economic conditions and financial institution. Generally, high-yield savings accounts offer significantly higher APYs than traditional savings accounts.
Q4: Does APY account for fees?
A: No, APY only reflects the interest earned. Account fees and other charges are not included in the APY calculation.
Q5: Can APY be negative?
A: While rare, some accounts might have negative interest rates in certain economic conditions, which would result in a negative APY, meaning you would lose money on your savings.