Effective Interest Rate Calculator (APY)
Calculate APY from nominal rate and compounding frequency.
About this tool
A nominal interest rate doesn't reflect how compounding frequency affects real growth. This calculates the effective annual rate (APY) \u2014 the rate you actually earn or pay in a year, once compounding is accounted for.
Key Features
- Converts nominal rate to true effective annual rate
- 5 common compounding frequencies
- Shows the exact gap between nominal and effective rates
How to Use
- Enter the nominal (stated) annual interest rate.
- Choose how often it compounds.
- Click Calculate APY.
Benefits
- Compare savings accounts or loans with different compounding schedules fairly
- Understand why a bank's APY is higher than its stated rate
- See the real cost or return of compounding
Frequently Asked Questions
Because compounding means you earn (or pay) interest on interest already accumulated within the year, not just on the original principal \u2014 the more frequently it compounds, the bigger that effect, so the effective rate always meets or exceeds the nominal rate.
Always compare effective annual rates (APY for savings, APR/effective rate for loans) rather than nominal rates \u2014 two accounts with the same nominal rate but different compounding frequencies don't actually perform the same.