APR to APY Calculator
APR (Annual Percentage Rate) is the stated interest rate, while APY (Annual Percentage Yield) accounts for the effect of compounding — how often interest is added to the principal. This calculator converts APR to APY so you can compare financial products on a like-for-like basis.
How it's calculated
APY = (1 + APR ÷ n)ⁿ − 1
where n = number of compounding periods per year.
Frequently Asked Questions
- What is the difference between APR and APY?
- APR is the simple annual interest rate without factoring in compounding. APY (also called EAR — Effective Annual Rate) reflects the true annual return once compounding is taken into account. The more frequently interest compounds, the higher the APY relative to the APR.
- Why does compounding frequency matter?
- Daily compounding adds interest 365 times a year, whereas annual compounding adds it once. The same APR will produce a higher effective yield with more frequent compounding, which matters when comparing savings accounts, loans, or investments.
- When is APY used vs APR in the UK?
- UK banks typically quote savings rates as AER (Annual Equivalent Rate), which is equivalent to APY. Loans are usually quoted as APR. Comparing the AER/APY of two savings accounts gives you a fair comparison regardless of compounding frequency.