APY Calculator is a tool which enables you to calculate the actual interest earned per year. Annual interest yield (APY) is a measurement used to check which deposit account is the most profitable or whether the investment will yield good returns. You can also use it in reverse to find the interest rate with a given compound frequency if you know what the annual percentage yield is. Also, just for your convenience, we let you play with actual amounts - pick the initial balance and the term to get the final balance (or, as usual, do it in reverse!).
Keep reading to find out:
- What is APY?
- How does the APY calculator work?
- How to calculate annual percentage yield.
What is APY?
APY stands for annual percentage yield, otherwise called effective annual rate (EAR). This measurement is used to estimate the possible gain from the investment or the return of balance in deposit accounts.
With annual percentage yield you can compare a number of interest rates which have different compounding periods.
APY is a measurement similar to compound interest but expressed in percentages. While you can use the compound interest calculator in order to check the final balance of your investment, the APY calculator will estimate its annual percentage gain.
Remember that APY is not the same as APR. The latter stands for annual percentage rate and is normally associated with loans and mortgages. Provided you don't invest money, but borrow it, the formula is quite similar. In order to decide which loan offer is the most beneficial, you can use our mortgage calculator. This tool helps you estimate the amount of money you'll have to pay back.
How does APY calculator work?
APY calculator bases its calculations on two values - interest and compound frequency. Thanks to the variety of options in the second box, you can compare a number of offers which have different compounding periods.
For example, you have the following offers:
- Interest rate of 1% compounded yearly,
APY = 1%
- Interest rate of 0,7% compounded quarterly,
APY = 0,702%
- Interest rate of 0,5% compounded daily,
APY = 0,501%
Now, the only thing you have to remember is that the higher the APY value is, the more benefit you will have from the offer. By calculating APY, you can see that the first of the exemplary offers pays off the most.
How to calculate annual percentage yield
The calculation of the annual percentage yield is based on the following equation:
APY = (1 + r/n )n – 1
- r - the interest rate
- n - the number of times the interest is compounded per year
As you have already learned what APY is, you can use this formula to calculate the annual percentage yield by yourself. However, it would be tedious to make all these calculations for each offer you want to consider. A much easier and time-saving solution is to use our APY calculator.
All you need to do is:
- Type the interest rate, e.g. 2%
- Determine compound frequency, e.g. half-yearly
The calculator will count the APY. In this case it amounts to 2,01%.
If you want to make the inverse calculation you can also use the savings calculator. This tool helps you estimate how much you'll save or how much you need to deposit if you have a certain amount as your goal.