APR vs APY Calculator & Explainer
APR vs APY Calculator & Explainer: APR is the simple annual rate; APY (or EAR) includes the effect of compounding. Enter a rate and compounding frequency to convert between APR and APY and see the true annual cost or yield.
Data as of 2026-06-14.
Estimates only — for general education, not financial advice. See our disclaimer.
The formula
APY = (1 + APR/n)ⁿ − 1 · APR = n · ((1 + APY)^(1/n) − 1)
APR is the simple (nominal) annual rate; APY — also called the effective annual rate (EAR) — includes the effect of compounding n times per year. The more frequent the compounding, the larger the gap between APR and APY.
How it works
- APR ignores intra-year compounding; APY includes it, so APY ≥ APR.
- Lenders often quote APR; savings accounts quote APY — so deposits look bigger and loans look smaller.
- The gap widens with more frequent compounding (daily > monthly > annually).
- To compare a loan and a savings yield fairly, convert both to the same basis (usually APY/EAR).
Frequently asked questions
What is the difference between APR and APY?
APR (annual percentage rate) is the nominal yearly rate and ignores compounding within the year. APY (annual percentage yield, or EAR) includes compounding, so it reflects the true annual cost or return. APY is always greater than or equal to APR. Read APR vs APY for examples.
Why is APY higher than APR?
Because APY accounts for interest earning interest. If 6% APR compounds monthly, you effectively earn/pay 6.168% over the year — that's the APY. The more often it compounds, the bigger the difference.
Which rate do lenders use?
Loans are typically advertised by APR, which (by US law) also folds in certain fees but not intra-year compounding. Savings and deposit accounts advertise APY. Converting both to the same basis lets you compare them honestly.
How do I convert APR to APY?
Use APY = (1 + APR/n)ⁿ − 1, where n is the number of compounding periods per year. The calculator above does this for you in both directions. This is an educational tool, not financial advice.
Read more
Related calculators
Last updated: 2026-06-14