## Annual Percentage Yield Calculator

This APY calculator is a convenient tool for determining the Annual Percentage Yield (APY) of a deposit. It takes into account the simple annual interest rate and the frequency of compounding, which can be set to daily, monthly, quarterly, semi-annually, or annually. With this calculator, you can easily calculate the APY of your savings account based on the compounding period you choose.

## Using the APY calculator

Compound interest is a type of interest where the interest earned is added to the principal amount and the new interest is calculated based on the total sum including the past interest. Many financial institutions only list the annual percentage rate (APR) which doesn’t reflect the actual interest earned. To know the actual interest earned, it is best to calculate the annual percentage yield (APY).

Our online APY calculator is a helpful tool for calculating the APY of a deposit by inputting the annual interest rate and the compounding period. It also calculates the final amount of savings if you input the starting capital and deposit term. Additionally, if you plan on making regular contributions to the deposit, you can enter the amount and frequency of the contributions, as well as whether they will be made at the beginning or end of the period.

The calculator will output the APY, the final value of the deposit, the interest earned, and the percentage capital growth. However, it’s important to note that it doesn’t take into account any bank fees, taxes, or other charges that may apply.

## APY formula

To calculate the APY (Annual Percentage Yield) by yourself or using an Excel spreadsheet, you can use the following formula:

### APY = (1 + (r/n))^n – 1

Where ‘r’ is the simple annual interest rate in decimal and ‘n’ is the number of compounding periods per year. For example, if you have an annual interest rate of 2% and the compounding period is quarterly, the calculation would be:

APY = (1 + (0.02/4))^4 – 1 * 100 = (1.00505)^4 – 1 * 100 = (1.02015) – 1 * 100 = 2.015%

Which would be the annual percentage yield for a 2% interest rate with quarterly compounding.

## Effect of the compounding frequency

The compounding frequency, or the time period at which interest is added to the principal, can slightly increase the effective interest rate of a Certificate of Deposit (CD) compared to the nominal annual interest rate. By using a shorter compounding period in a CD calculator, you can see the potential effect on your overall savings. The most effective rate is achieved with daily compounding, or continuous compounding, while slightly lower rates can be expected with monthly or yearly compounding.

Initial Deposit | Annual Interest Rate | Compounding Frequency | APY | Value after 5y |
---|---|---|---|---|

$10,000 | 3% | Annually | 3.000% | $11,593 |

$10,000 | 3% | Semiannually | 3.022% | $11,605 |

$10,000 | 3% | Quarterly | 3.034% | $11,612 |

$10,000 | 3% | Monthly | 3.042% | $11,616 |

$10,000 | 3% | Daily | 3.045% | $11,618 |

The above explanation assumes that no additional deposits are made, to make the comparison simple. It’s worth noting that for small deposit amounts, the APY is relatively close to the annual interest rate, and the difference may not be significant, particularly over short time periods. However, as the time period increases and deposit amount gets larger, the difference in APY becomes substantial.

## Financial caution

This calculator is a useful tool for estimating the interest rate and returns from a bank deposit or similar investment, but it’s important to note that it is not a substitute for professional financial advice. When making important financial decisions and long-term agreements, such as bank deposits, it’s recommended to consult a qualified professional. It’s important to critically evaluate and use the information provided by this calculator at your own risk.