APR vs APY
The APR (or nominal rate) is the yearly rate before compounding. The APY includes compounding: interest earned on interest during the year. Banks must quote APY on savings, which makes accounts easy to compare, but it's always a bit higher than the APR.
Example: 5% compounded daily is an APY of 5.1267%; monthly, 5.1162%; yearly, exactly 5%. On $10,000, daily compounding earns $512.67 in a year.
What APY really tells you
- Compare savings accounts and CDs by APY; it's the yearly growth you'll actually see if the rate stays the same.
- Savings account rates are variable and can change at any time. CD rates are locked for the term; see the CD calculator.
- For loans, the APR you're quoted also includes certain fees, which is different from the nominal rate used here.
To see growth over many years with deposits, use the compound interest calculator.
Frequently asked questions
Is APY or APR better for savings?
Look at APY when comparing savings accounts: it includes compounding, so it's the true yearly return. Two accounts with the same APY earn the same, whatever their compounding.
How much does daily vs monthly compounding matter?
Very little. At 5%, daily compounding gives 5.127% APY and monthly 5.116%: about $1 a year on $10,000.
How do I calculate monthly interest from APY?
Multiply your balance by the APY and divide by 12 for a close estimate. On $10,000 at 4.5% APY that's about $37.50 a month.
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