Use this APY calculator to work out the annual percentage yield on an investment or savings account. It will also show you how much interest you can earn on a specific principal amount. You may also want to check out our compound interest calculator.
Like it? Share it:
f
π
P
in
Disclaimer: Whilst every effort has been made in building our calculator tools, we are not to be held liable for any damages or monetary losses arising out of or in connection with their use. Full disclaimer.
What is APY?
APY stands for Annual Percentage Yield, and it represents the real rate of return you earn on an investment or savings balance over a period of one year. The important thing about APY is that it factors in the effect of compounding interest, meaning it shows your actual earnings when interest is reinvested into your balance over time.
APY applies across a range of financial products including savings accounts, money market accounts, certificates of deposit (CDs), and other interestβbearing accounts. Banks and financial institutions are required to disclose the APY so that consumers can make fair comparisons between different products.
The more frequently your interest compounds, the higher your APY will be relative to the stated APR. For example, an account with a 5% APR that compounds monthly will have a higher APY than an account with 5% APR that compounds annually, because the monthly account earns interest on its accrued interest more frequently.
Key takeaway: APY gives you a more accurate picture of your actual return than the nominal interest rate (APR). When comparing savings accounts or CDs, always compare the APY β it levels the playing field by factoring in the effect of compounding.
How to calculate APY from APR
To calculate APY from a stated APR, you will need to know the annual interest rate and the number of compounding periods per year. The formula adjusts the nominal rate to reflect the effect of compounding, giving you the true annual return rate.
Tip: A quick way to think about APY is: it's the rate that, if applied once per year to your balance with no compounding, would give you the same result as the actual rate applied multiple times per year with compounding.
The formula for calculating APY is as follows:
The result is expressed as a decimal. Multiply by 100 to get the APY as a percentage.
Example
As an example, let's say you are looking at a savings account with a 5% APR, and the interest compounds monthly (12 times per year). We want to calculate the APY to find out the true annual return.
APY = (1 + r/n)n β 1
APY = (1 + 0.05/12)12 β 1
APY = (1 + 0.004167)12 β 1
APY = (1.004167)12 β 1
APY = 1.051162 β 1
APY = 0.051162
APY β 5.116%
So, with a 5% APR compounding monthly, your effective annual yield is approximately 5.116%. This means you earn slightly more than the stated 5% rate because of the compounding effect. The difference may seem small, but over large balances and longer time horizons, it adds up considerably.
If you want to see a further example of a compound interest calculation, you can look at the compound interest formula page.
How to calculate APY from principal and earned interest
To calculate APY when you already know the principal and the interest earned over a year, you can use the following simple formula. This is useful if you know how much interest your account has earned but want to know the effective APY.
Example
Let's say you deposited $10,000 into a savings account and, after 1 year, you earned $512 in interest. To calculate the APY:
APY = (Interest / Principal) Γ 100
APY = (512 / 10000) Γ 100
APY = 0.0512 Γ 100
APY = 5.12%
So your APY is 5.12%, meaning that for every $100 in your account, you effectively earned $5.12 over the year. This approach works well for a retrospective calculation of your actual yield.
How to calculate interest earned from APY and Principal
If you know the APY and the principal amount, you can easily calculate the interest you'll earn in a year using the following formula:
This is a straightforward calculation. Simply take your starting balance, multiply it by the APY expressed as a decimal, and the result is the interest you will earn over one year.
Example
Suppose you have $25,000 in a high-yield savings account with an APY of 4.5%. How much interest will you earn in one year?
Interest = Principal Γ (APY / 100)
Interest = 25,000 Γ (4.5 / 100)
Interest = 25,000 Γ 0.045
Interest = $1,125.00
This means you'd earn $1,125 in interest over the year. Of course, the actual accrual pattern depends on when and how often the interest compounds, but the total earned by the end of the year will match this figure if the APY is accurate.
What is the difference between APY and APR?
The terms APR and APY are often used interchangeably, but they mean very different things. Understanding the distinction is critical when comparing financial products.
APR (Annual Percentage Rate) is the nominal interest rate stated by the bank or lender. It does not account for compounding within the year. It's the "headline" rate you see advertised.
APY (Annual Percentage Yield) is the effective annual rate that does factor in compounding. It shows you the real return on your savings or the real cost of a loan over a year.
Rule of thumb: For savings and investments, look at the APY β a higher APY means more earnings. For loans and credit cards, the APR is typically quoted, but the actual cost may be higher due to compounding (especially with daily compounding on credit card balances).
Example
Let's say you have two savings accounts, both advertising a 5% rate. But one compounds monthly and the other compounds daily. Here's how the APY differs:
Account A: 5% APR, compounded monthly
APY = (1 + 0.05/12)12 β 1 = 5.116%
Account B: 5% APR, compounded daily
APY = (1 + 0.05/365)365 β 1 = 5.127%
While both accounts advertise a 5% rate, Account B yields slightly more because interest compounds more frequently. On a $100,000 balance, the difference amounts to about $11 per year. It may seem small, but over decades, even tiny APY differences compound into meaningful sums.
That's why it's always important to compare APY rather than APR when evaluating savings or CD accounts. The APY gives you the true picture.
Thanks for reading
I hope this article and calculator have helped you understand APY and how it affects your savings. If you found the calculator useful, I'd really appreciate it if you could share it on your favorite social media platform using the share buttons above.
If you have any problems using our APY calculator tool, or any suggestions for improvements, please contact us.
π Last updated: This article was reviewed and updated by Alastair Hazell on February 20, 2026. For more information, please see our about page and our editorial policy.