APR ↔ APY Converter

Financial institutions use APR and APY to describe interest from different perspectives. APR — the Annual Percentage Rate — reports the nominal rate without any adjustment for how frequently interest is actually calculated. Banks prefer to advertise APR on loans because the stated number appears lower than the true cost. APY — the Annual Percentage Yield — compounds that rate over the full year, giving you the real effective return or cost. Regulators require banks to disclose APY on savings products and APR on loan products, which means consumers who compare only the headline numbers on different account types are comparing apples to oranges. Understanding both rates gives you a single comparable metric regardless of product type. The gap between them grows with higher stated rates and more frequent compounding. At 5% monthly compounding, the spread is about 0.12 percentage points — modest but real. At 25% daily compounding (a typical credit card), the effective rate is nearly 3.5 percentage points above the stated APR, adding hundreds of dollars a year to a carried balance. Always convert to APY before making any side-by-side comparison.

The advertised APY is just the starting point for evaluating a savings product. Three forces silently erode your real returns: fees, taxes, and inflation. Account maintenance fees and origination costs reduce the net value accumulated over time. A $120-per-year fee on a $10,000 savings account earning 4% APY cuts your effective yield by approximately 1.2 percentage points, leaving net APY closer to 2.8%. Income taxes on interest are equally corrosive — a 22% marginal rate applied to a 5% APY leaves you with 3.9% after-tax yield. Inflation then attacks what remains: at 3% inflation, that 3.9% after-tax APY translates to a real purchasing-power gain of less than 0.9%. A savings account that appears to pay 5% gross may be delivering under 1% in actual real wealth after all three forces are applied. This calculator makes all three deductions visible at once, so you can evaluate accounts on the only basis that truly matters — real after-tax return. Tax-advantaged accounts such as Roth IRAs eliminate the tax drag entirely, often making a lower nominal yield more valuable than a higher taxable one.

Compounding describes earning interest on previously accumulated interest, and the frequency with which that happens materially changes your outcome over long periods. At a 5% APR with monthly compounding, you actually earn an APY of 5.116% — a difference that seems trivial on $1,000 but adds over $580 on a $100,000 balance across ten years. The math accelerates at higher rates. A credit card charging 25% APR with daily compounding has an effective APY of nearly 28.4%, meaning the lender collects far more than the stated rate implies. Conversely, switching from annual to daily compounding on a high-yield savings account paying 5% APR earns an extra $126 per year on $100,000 at no additional cost to you — essentially free money for choosing the right account type. The formula APY = (1 + r/n)^n − 1 expresses this precisely: as n grows, APY approaches the continuous compounding limit of e^r − 1. In practice, the difference between daily and continuous compounding is less than 0.001% at any realistic rate, so daily compounding is functionally equivalent. Prioritize maximizing compounding frequency on savings products whenever you have a choice between two otherwise identical accounts.

When evaluating savings accounts, always compare APY — specifically after-tax real APY — rather than the advertised nominal rate. Two accounts at the same gross APY can have vastly different net yields once fees and tax treatment are factored in. A high-yield savings account at 5% APY (taxable) may deliver lower net returns than a 4.5% APY money-market account inside a Roth IRA for someone in the 24% bracket. When comparing loans, use APR as the base-cost metric, but convert to APY to understand the true annual burden on revolving debt. For mortgages, the federally-mandated APR calculation includes some fees, making it a better comparison tool than the stated note rate alone. For credit cards with daily compounding, the APY is always the more honest figure. The Scenario Analysis tab in this calculator lets you benchmark your rate against historical deposit and lending rates to see whether you are on the right side of the market at any given moment.