APY vs APR: What's the Difference?
APR (annual percentage rate) is the plain, nominal interest rate before compounding. APY (annual percentage yield) is what you actually earn in a year after compounding is included. Because compounding adds interest-on-interest, APY is always equal to or higher than APR for the same account.
The Formula
APY = (1 + APR/n)^n − 1, where n is the number of compounding periods per year. This calculator inverts that: APR = n × ((1 + APY)^(1/n) − 1). For example, a 4.50% APY with daily compounding comes from a nominal rate of about 4.40%.
Why This Matters
- Banks advertise APY on savings products (it looks bigger) and APR on loans (it looks smaller). Knowing the conversion keeps comparisons honest.
- When comparing two savings accounts, always compare APY to APY — compounding frequency is already accounted for.
- Spreadsheets and bond math often need the nominal rate, not APY — this converter gives it to you.
Converting APR to APY (the Reverse Direction)
Going the other way uses the original compounding formula: APY = (1 + APR ÷ n)n − 1. A 4.40% APR compounded daily becomes a 4.498% APY; compounded monthly, 4.490%. The more frequent the compounding, the bigger the gap between the two numbers — and at a single compounding per year, APR and APY are identical. Switch the direction selector above to convert either way.
Quick Reference: APR ⇄ APY at Daily Compounding
- 4.00% APR ⇄ 4.081% APY
- 4.50% APR ⇄ 4.602% APY
- 5.00% APR ⇄ 5.127% APY
- A useful shortcut at everyday rates: APY runs about 0.08–0.13 points above its APR.