APR vs APY Converter

APR (Annual Percentage Rate) is a nominal rate. It tells you what fraction of the principal will accrue as interest in one year if interest is calculated once and never compounded. It is the rate lenders are required to disclose under the US Truth in Lending Act, and the rate banks use to compute the periodic interest charge on a loan or credit card.

APY (Annual Percentage Yield), also called EAR (Effective Annual Rate), captures what actually happens when interest is added to the balance and then itself earns interest. Because each compounding period earns interest on the previous period's interest, the effective rate creeps above the nominal one. The shorter the compounding period, the bigger the gap — daily compounding produces a noticeably higher APY than annual compounding for the same APR.

The practical takeaway: never compare a savings account's APY to a credit card's APR head-to-head. Convert them to the same basis first. A 5.00% APY savings account is not the same as a 5.00% APR loan — the loan, if compounded monthly, is actually closer to 5.12% APY in real cost.

Use APR when comparing the cost of borrowing: mortgages, auto loans, personal loans, and credit cards. US lenders must quote APR (and it must include certain fees on a mortgage), so APR-to-APR comparisons across lenders are apples-to-apples on the rate itself.

Use APY when comparing the return on saving or investing: high-yield savings accounts, money-market funds, CDs, and bonds. Banks must quote APY on deposit products under the Truth in Savings Act, so APY-to-APY comparisons across institutions are apples-to-apples on yield.

Mixing the two will make a deal look better or worse than it is. Credit card issuers quote 24% APR, which sounds bad — but if you carry a balance and they compound daily, the effective APY is closer to 27.1%. A CD quoted at 5.00% APY is actually paying about 4.88% APR if it compounds monthly. The calculator above lets you flip between the two with one click.

For an APR of 5.00%, the resulting APY by frequency is: annual = 5.0000%, semiannual = 5.0625%, quarterly = 5.0945%, monthly = 5.1162%, weekly = 5.1246%, daily = 5.1267%, continuous = 5.1271%. Beyond daily, the gains shrink to a rounding error — there's no meaningful difference between daily and continuous compounding on consumer products.

Going the other way, an APY of 5.00% implies an APR of 5.0000% (annual), 4.9390% (semiannual), 4.9089% (quarterly), 4.8889% (monthly), 4.8810% (weekly), or 4.8790% (daily). When a lender advertises a tiny APR but a glaringly higher APY (or vice versa), the compounding frequency is doing the heavy lifting — make sure you know which one applies to the actual product.

Take a credit card quoted at 22.99% APR with daily compounding. The effective APY is (1 + 0.2299 / 365)^365 − 1 = 25.83%. On a $5,000 carried balance, the lender is collecting roughly $1,291 of interest per year, not the $1,150 the headline APR implies — a $141 gap that almost entirely covers your next minimum payment.

Now look at a high-yield savings account quoted at 4.50% APY. Banks must disclose APY under the Truth in Savings Act, so that's the actual yield. The underlying APR (assuming daily compounding) is 365 × ((1 + 0.045)^(1/365) − 1) = 4.401%. On $20,000 of savings, the APY of 4.50% pays $900/year; the same balance quoted as a 4.401% APR with simple interest would pay $880 — the $20 difference is the compounding bonus the bank is required to surface as APY.

The takeaway: compare deposit products on APY and loan products on APR, but always convert when something looks off. A 'low APR' loan with daily compounding can easily out-cost a 'higher APR' loan that compounds annually — and a CD quoted on APR rather than APY is almost always smaller than its competitors once you do the math.