How APY works

Interest on the same stated rate can be credited at different frequencies — daily, monthly, quarterly. Each time it is credited it is added to your balance, so the next round of interest is earned on a slightly bigger number. APY captures that compounding, which is why it is always equal to or slightly higher than the plain stated (nominal) rate.

APY = (1 + r / n)n − 1 r = stated annual rate (as a decimal) n = times interest compounds per year

For example, a 4.5% rate compounded monthly works out to an APY of about 4.59% — that extra 0.09% is the compounding.

Why it matters

APY is the apples-to-apples number for comparing savings products. Two accounts can quote the same rate but pay different APYs if they compound differently — and the higher APY pays more. Always compare by APY, not the headline rate.

See APY in action

Estimate the maturity value and APY on a certificate of deposit.

Open the CD calculator

Frequently asked questions