APR vs. APY in plain English
APR (annual percentage rate) and APY (annual percentage yield) both describe interest over a year, but they answer different questions. APR is the simple, nominal annual rate. APY includes the effect of compounding, meaning interest earning interest during the year. Whenever interest compounds more than once a year, APY is higher than APR.
For example, 5% APR compounded monthly equals about a 5.116% APY. The difference looks small, but it grows with larger balances and higher rates, and it matters when comparing financial products that quote different figures.
Where you will see each number
Savings accounts, CDs, and money market accounts in the US advertise APY. Under the Truth in Savings Act and its Regulation DD, banks disclose APY so consumers can compare deposit accounts on an equal footing. Loans and credit cards generally advertise APR under the Truth in Lending Act. For loans, the disclosed APR can also include certain fees, so it is not always a pure interest rate; the calculator here treats APR purely as a nominal rate.
The practical point: a bank naturally prefers to show you the bigger number when paying you (APY), and lenders show APR. When comparing a loan with an investment, or two products quoted differently, convert to the same basis first.
How to use the calculator
Enter an APR and choose how often interest compounds to see the equivalent APY. Or enter an APY to find the nominal rate behind it. Both results update as you type. Credit card interest is typically calculated with a daily periodic rate, so choose daily compounding to see the effective annual cost of a carried card balance; for a 24% APR the effective rate is noticeably higher than 24%.
Why compounding frequency matters
The more often interest compounds, the higher the APY for a given APR, but the gains shrink quickly. Moving from annual to monthly compounding adds a meaningful amount; moving from monthly to daily adds very little. That is why it is usually fine to compare accounts using APY alone without worrying about their compounding schedules.
Real vs. nominal rates
Neither APR nor APY accounts for inflation. If your savings account pays 4% APY and inflation runs at 3%, your purchasing power grows by roughly 1% a year before taxes. Use our inflation calculator to understand real returns.
Quick reference
A few approximate monthly-compounding conversions: 3% APR ≈ 3.04% APY, 5% APR ≈ 5.12% APY, 10% APR ≈ 10.47% APY, 20% APR ≈ 21.94% APY. Use the calculator for exact figures at any rate.
Formula used
APY = (1 + APR / n)n − 1
APR = n × ((1 + APY)1/n − 1)
where n is the number of compounding periods per year (1, 4, 12, or 365).
Frequently asked questions
Is APY always higher than APR?
It is equal when interest compounds once a year and higher whenever compounding is more frequent.
Which number should I compare for savings accounts?
APY, because it reflects compounding and is the standardized disclosure for US deposit accounts.
Does loan APR include fees?
Disclosed loan APRs can include certain finance charges such as some fees, so they may differ from the note rate.
What compounding do credit cards use?
Most US issuers use a daily periodic rate, so choose daily compounding to approximate the effective cost.
Keep planning
- Compound Interest Calculator — project savings growth.
- Credit Card Payoff Calculator — see what your card APR costs.
- Savings Goal Calculator — plan monthly savings.