APR to APY Converter
Compound Interest Calculator
APR vs APY
APR: Annual Percentage Rate - the yearly interest rate without compounding
APY: Annual Percentage Yield - the effective annual rate with compounding
APY is always higher than APR when compounding occurs more than once per year.
Compounding Frequency
More frequent compounding results in higher effective yields:
• Daily compounding: 365 times per year
• Monthly compounding: 12 times per year
• Quarterly compounding: 4 times per year
About Interest Rate Conversion
Convert between APR (Annual Percentage Rate) and APY (Annual Percentage Yield) to understand the true cost of borrowing or return on investment. Our calculator accounts for different compounding frequencies to provide accurate financial comparisons.
Interest Rate Applications
- Comparing savings account yields
- Evaluating loan costs and terms
- Investment return calculations
- Financial planning and budgeting
Frequently Asked Questions
What's the difference between APR and APY?
APR (Annual Percentage Rate) is the yearly interest rate without compounding effects. APY (Annual Percentage Yield) includes compounding, showing the actual annual return. APY is always higher than APR when compounding occurs.
How does compounding frequency affect returns?
More frequent compounding increases returns: daily compounding earns more than monthly, which earns more than annually. However, the difference becomes smaller at higher frequencies due to diminishing returns.
What is compound interest and why is it important?
Compound interest is earning interest on both your principal and previously earned interest. Einstein allegedly called it "the eighth wonder of the world" because it can dramatically increase wealth over time through exponential growth.
How do I calculate the rule of 72?
The rule of 72 estimates how long it takes to double your money: divide 72 by the interest rate. For example, at 6% interest, your money doubles in approximately 72 ÷ 6 = 12 years.
Should I compare APR or APY when choosing accounts?
For savings accounts and investments, compare APY since it shows actual returns including compounding. For loans and credit cards, compare APR since it shows the true cost of borrowing.
How does inflation affect real returns?
Real return = nominal return - inflation rate. If your investment earns 5% APY but inflation is 3%, your real return is only 2%. Consider inflation when evaluating long-term investment performance.