APY (annual percentage yield) is the effective interest rate you actually earn in a year once compounding is included. Because interest earns interest, APY is a little higher than the quoted nominal rate — the more often it compounds, the higher the APY.

What is the difference between nominal rate and APY?

The nominal rate is the stated yearly rate before compounding. APY folds in how often interest is added. For example, 5% nominal compounded monthly gives an APY of about 5.12%. When comparing savings accounts, compare APYs, not nominal rates.

How is APY calculated?

APY = (1 + nominal rate / n)^n - 1, where n is the number of compounding periods per year. Daily compounding gives a slightly higher APY than monthly, which is higher than annual, for the same nominal rate.

Why compare APY instead of the headline rate?

Two accounts can quote the same nominal rate but pay different amounts if they compound at different frequencies. APY normalises that into a single figure, so it is the fair number to compare when choosing where to save.

fin·calc

APY & Savings Calculator

Updated: August 2026 · Estimates only — check your bank's terms.

A savings account's headline rate isn't what you actually earn — compounding makes the real figure, the APY, a little higher. Enter your deposit, the nominal rate and how often it compounds to see the effective annual yield, your future balance, and the interest earned. It works in any currency.

Deposit

Nominal rate (% p.a.)

Compounding

Years

yrs

Effective annual yield (APY)5.12%

Balance after term$11,615

Interest earned$1,615

Nominal rate5.00%

APY is what you truly earn once compounding is counted — always higher than the nominal rate. Compare accounts by APY, not the headline rate. Fixed deposit calculator →

Why APY beats the headline rate

Banks quote a nominal rate, but you actually earn a little more because interest is added several times a year and then earns interest itself. That real figure is the APY. The more frequently an account compounds, the higher its APY for the same nominal rate — which is why two accounts advertising the same rate can pay different amounts. When you're choosing where to save, the APY is the number to compare.

Worked example

A 5% nominal rate compounded monthly gives an APY of about 5.12%; compounded daily it's about 5.13%; compounded once a year it's exactly 5.00%. On a $10,000 deposit at 5% monthly for 3 years, you'd end with about $11,615 — roughly $1,615 of interest. Change the frequency above to see how compounding lifts the yield.

Getting the most from savings interest

Compare APYs, not nominal rates — it's the only apples-to-apples figure across accounts.
More frequent compounding helps, though the difference between monthly and daily is small; the rate itself matters far more.
Watch for taxes and inflation — your real return is the APY minus tax on the interest and minus inflation.

Methodology & assumptions

APY = (1 + nominal rate ÷ n)ⁿ − 1, and balance = deposit × (1 + nominal rate ÷ n)^{(n × years)}, where n is the compounding periods per year. It assumes a single lump-sum deposit with no additional contributions or withdrawals, a constant rate, and no tax. Real accounts may round or apply tax; treat this as a planning estimate. See our methodology and editorial policy.

Frequently Asked Questions

Is APY always higher than the nominal rate?

Yes, whenever interest compounds more than once a year. With annual compounding, APY equals the nominal rate.

Does this include monthly deposits?

No — it's for a lump sum. For regular contributions, use the compound-interest or SIP calculator.

APY vs APR?

APY is for money you earn (savings); APR is for money you borrow. Both express an annual rate, but APR usually excludes compounding.

Saving toward a goal?

See how a lump sum plus regular contributions grows with compound interest over time.

Open the compound interest calculator →

Related calculators

Sources

Uses the standard APY (effective annual rate) and compound-balance formulas. Figures are estimates for planning and exclude tax — confirm the rate and compounding with your bank. See our methodology and editorial policy.