Annual Percentage Yield Calculator
Convert a nominal interest rate and compounding frequency into its effective annual yield (APY).
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Your result
8.30%
Effective annual yield (APY)
AI explanation
Formula
APY = (1 + nominal rate/n)^n − 1, where n is the number of compounding periods per yearWorked example
8% nominal, compounded monthly
| Field | Value |
|---|---|
| Nominal annual interest rate | 8 |
| Compounding frequency | 12 |
| Effective annual yield (APY) | 8.3 |
Assumptions
- APY is always equal to or greater than the nominal rate, and the gap widens with more frequent compounding.
- Informational only.
Frequently asked questions
What is the difference between nominal rate and APY?
The nominal rate is the stated annual rate before considering compounding. APY (or effective annual rate) is the actual annual return after accounting for how often interest compounds — it's always equal to or higher than the nominal rate.
Why does more frequent compounding increase APY?
With more frequent compounding, interest is added to the balance more often, so subsequent interest calculations are based on a slightly larger balance sooner — this compounding effect increases the effective annual yield.
Should I compare investment products using nominal rate or APY?
APY gives a fairer comparison between products with different compounding frequencies, since it reflects the actual annual return you'd earn.
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Sources
- Master Direction – Reserve Bank of India (Interest Rate on Deposits) — Reserve Bank of India. Effective 03-03-2016, reviewed 13-09-2026.
This calculator provides a general estimate only and does not constitute financial advice.
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