How to Calculate the APY From the APR

Calculating APY

APY is the annual percent yield. APY is the interest rate of an account if the account only compounds once a year. APR is the annual percentage rate, also known as the nominal rate. This rate is the amount of interest a bank account earns without regards to compounding. Typically, a person saving money wants a bank account with the highest APY, and if a person is spending money with a credit card, they want the lowest APY.

Instructions

1. Divide the interest rate by the amount of times an account compounds per year. For example, a savings account offers 6 percent interest, also known as 6 percent APR, semiannually. Divide 6 percent by 2, which equals 0.03.

2. Add one to the number calculated in Step 1. In the example, one plus 0.03, which equals 1.03.

3. Raise the number calculated in Step 2 by the power of the number of times a year the account compounds. In the example, 1.03 ^ 2, which equals 1.0609.

4. Subtract one from the number calculated in Step 3 to arrive at APY. In the example, one minus 1.0609, which equals 0.0609 or 6.09%.

References

• University of Arizona: Compound Interest and APY Calculations
• All Financial Matters: How To Convert An Interest Rate To APY