How to Calculate an APY Compounded Daily

Calculating APY

People who use credit cards must pay back the amount spent on the credit card and interest. The interest compounds over time. When the interest rate compounds daily, it compounds 365 times over the course of a year. This will lead to a high APY.

Instructions

1. Divide the APR by 365 and then add one. For example, a credit card has an interest rate of 9 percent. Nine percent divided by 365, equals 0.000247; then add 1, which equals 1.000247.

2. Raise the number calculated in Step 1 by the power of 365. In the example, 0.000247 ^ 365, which equals 1.094162.

3. Subtract one from the number calculated in Step 2 to arrive at APY. In the example, one minus 1.094162, which equals 0.094162 or 9.4162 percent.

References

• University of Arizona: Compound Interest and APY Calculations