What Is an APR to APY Calculator?
Our APR to APY Calculator helps you convert an annual percentage rate (APR) into an annual percentage yield (APY) based on how often interest is compounded. Simply enter the APR and select the compounding frequency to estimate the effective annual yield.
The calculator is useful when comparing savings accounts, certificates of deposit, loans, credit products, and other financial rates where compound interest affects the actual annual return or cost.
What Is APR?
APR stands for Annual Percentage Rate. It represents an annual interest rate expressed as a percentage. APR is commonly used for loans, credit cards, and other borrowing products.
When converting APR to APY, the APR is treated as the stated annual interest rate before the effect of compounding is included. The number of times interest compounds during the year determines the resulting APY.
What Is APY?
APY stands for Annual Percentage Yield. It shows the effective annual rate after taking compound interest into account.
Because APY includes compounding, it is generally higher than the equivalent APR when interest is compounded more than once per year. The difference can be small for lower interest rates, but it becomes more noticeable as the interest rate and compounding frequency increase.
How to Use the APR to APY Calculator
Using the calculator is simple:
- Enter the annual percentage rate (APR).
- Select how frequently the interest compounds.
- Choose daily, weekly, semimonthly, monthly, quarterly, semiannually, or annually compounding.
- Click the calculate button.
- The calculator will display the equivalent APY.
The result represents the effective annual yield based on the APR and selected compounding frequency.
APR to APY Formula
When interest compounds during the year, APY can be calculated using the following formula:
APY = (1 + APR / n)n - 1
Where:
- APR = annual percentage rate expressed as a decimal
- n = number of compounding periods per year
- APY = annual percentage yield expressed as a decimal
To express the final APY as a percentage, multiply the decimal result by 100.
Compounding Frequencies
The compounding frequency determines how often interest is added to the balance during the year. Common frequencies include:
| Compounding | Periods Per Year |
|---|---|
| Daily | 365 |
| Weekly | 52 |
| Semimonthly | 24 |
| Monthly | 12 |
| Quarterly | 4 |
| Semiannually | 2 |
| Annually | 1 |
For some financial products, the institution may use a specific compounding convention. When accuracy is important, always check the terms provided by the bank or lender.
Example: Converting 4% APR to APY
Suppose an account has a 4.00% APR and compounds interest monthly.
First, convert the APR to decimal form:
4.00% = 0.04
There are 12 monthly compounding periods in a year, so:
APY = (1 + 0.04 / 12)12 - 1
The resulting APY is approximately 4.07%.
This means that a 4.00% APR compounded monthly produces an effective annual yield of about 4.07%, assuming the rate remains unchanged for the full year.
APR to APY Comparison
The following example shows how the same 4.00% APR can produce different APYs depending on how frequently interest compounds.
| Compounding Frequency | Approximate APY |
|---|---|
| Annually | 4.00% |
| Semiannually | 4.04% |
| Quarterly | 4.06% |
| Monthly | 4.07% |
| Weekly | 4.08% |
| Daily | 4.08% |
As the compounding frequency increases, the effective annual yield generally increases slightly because interest is added to the balance more frequently.
APR vs APY
| Feature | APR | APY |
|---|---|---|
| Full Name | Annual Percentage Rate | Annual Percentage Yield |
| Compounding Effect | Does not show the effective annual effect of compounding | Includes the effect of compounding |
| Common Use | Loans and credit products | Deposit and savings products |
| Effect of Frequent Compounding | Used as the stated annual rate | APY increases as compounding becomes more frequent |
Why Does APY Differ From APR?
The main difference is compound interest. With compounding, the interest earned during one period can become part of the balance used to calculate interest in a later period.
For example, an account with a 5.00% APR compounded annually has a 5.00% APY. If the same 5.00% rate compounds monthly, the effective APY will be slightly higher because interest is credited throughout the year.
When Should You Compare APR and APY?
APR and APY should not always be treated as interchangeable numbers. If you are comparing deposit accounts, APY can make it easier to compare the effective annual return because it reflects compounding.
For borrowing products, APR can provide useful information about the annual cost of credit, although the exact meaning of APR can vary depending on the product and applicable fees. Always review the lender's terms before making a financial decision.
APR to APY Calculator Example
Consider an account offering a 6.00% APR with quarterly compounding.
Using the APR to APY formula:
APY = (1 + 0.06 / 4)4 - 1
The resulting APY is approximately 6.14%.
This example demonstrates why the APY can be higher than the stated APR when interest compounds more than once per year.