How this calculator works
You enter the stated annual interest rate, the compounding frequency, a deposit amount and how many months the money stays in the account. The calculator converts the rate to an APY, then grows the deposit, compounding the stated rate on your schedule, for the period you chose and reports the interest earned and the ending balance.
A table repeats the calculation for all four compounding frequencies, so you can see how much the schedule itself changes the result. The calculation assumes the rate stays the same, that you make no deposits or withdrawals, that no fees apply and that interest stays in the account. Daily compounding uses a 365-day year.
The formula
APY answers one question: what would a year of interest be, as a percentage, once compounding is included? Each compounding period adds a small slice of the annual rate, and later slices are figured on a balance that already includes earlier interest. More periods in a year mean a slightly larger yield, though each extra step adds less.
For deposit accounts, federal Truth in Savings rules require an account’s APY to be disclosed, and it is calculated on a 365-day year. That shared basis is what makes APY useful for comparing offers side by side. A stated interest rate alone can’t be compared fairly across accounts that compound on different schedules.
A worked example
Take an illustrative 3.75% interest rate on an $8,000 deposit left alone for 12 months. Compounded monthly, the APY is 3.815% and the deposit earns about $305.21. Because the period is exactly one year, that interest is the deposit multiplied by the APY, which is the whole point of quoting a yield that already includes compounding.
The table shows the same 3.75% rate under each schedule. Moving from monthly to daily compounding adds 47 cents over the year. Raising the rate itself from 3.75% to 4.00%, still compounded monthly, adds about $20.72. In other words, the rate matters far more than the compounding schedule.
| Compounding | APY | Interest on $8,000 over 12 months |
|---|---|---|
| Annually | 3.750% | $300.00 |
| Quarterly | 3.803% | $304.25 |
| Monthly | 3.815% | $305.21 |
| Daily | 3.821% | $305.68 |
What the result doesn’t tell you
A savings account’s rate can be variable and change after you open it, so a 12-month figure is an estimate, not a promise. Fees, minimum balance requirements, balance tiers and promotional rates that expire can all make the money you actually receive differ from a headline APY. The account disclosures list each of these.
When the time you enter ends partway through a compounding period, such as 6 months with annual compounding, the calculator counts simple interest on that last part: interest accrued but not yet credited, which an account may add only when the period ends. Taxes on interest and the effect of inflation aren’t included either.
Common questions
What is the difference between APY and an interest rate?
The interest rate is the annual rate used to calculate interest before compounding. APY is the yield you’d earn over a year once compounding is included, assuming the interest stays in the account. When interest compounds more than once a year, the APY is a little higher than the rate. With annual compounding, the two are equal.
Is a higher APY always better?
Not always. A higher APY earns more on the same balance only if you can keep that balance under the same terms. A monthly fee, a minimum balance you won’t meet, a promotional rate that ends or slow access to your money can outweigh a small difference in yield. Comparing the dollars you’d earn after fees gives a clearer answer.
Does daily compounding make a big difference?
Usually not much. In the example above, daily compounding earned 47 cents more than monthly compounding on $8,000 over a year at 3.75%. Differences in the rate, fees and how long you keep the money tend to matter far more. Because APY already accounts for compounding, comparing APYs handles the schedule for you.
Is APY the same as APR?
No. APY describes what a deposit account pays you, with compounding included. APR, the annual percentage rate, describes the yearly cost of borrowing on a loan or credit card, and on a loan it can include certain fees. Both are yearly percentages, but they measure different things, so an APY can’t be compared directly with an APR.
Can my APY change after I open an account?
On a variable-rate account, yes. The account disclosures have to say that the rate and APY may change, how the rate is set and how often it can change. A fixed-rate account, such as many certificates of deposit, states how long its rate lasts. Knowing which kind you have tells you how far to trust a long projection.
Terms on this page
Sources and further reading
Examples are illustrative and focus on U.S. personal finance. This page is educational, not individual financial, investment, tax, or legal advice. Read our editorial approach or report a correction.
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