APY Calculator

By Ashley Kilroy | Updated May 24, 2024

An annual percentage yield or APY calculator can be a very useful tool when you want to know an accurate rate of return for a savings account, certificate of deposit, and other interest-bearing asset. Interest rates don’t always give the full picture because of the compounding frequency. That frequency indicates how often your interest gets added in with the principal so it too can earn interest. By factoring in compounding, you can get a better idea of how quickly your balance grows in one year.

An APY calculator, like the one below, can give you crucial information to determine the account’s profitability, without your having to do a lot of math. Within seconds, this tool can show you how an account performs, so you can make an educated decision about what is best for your needs.

*Actual interest credited by your financial institution may vary based on institution-specific calculation methodology.

Calculator Definitions

• Initial Deposit: The amount of money you first deposit into a financial account (you may hear it refers to as the principal). Typically, the financial institution requires this amount at a minimum for you to open the account. In addition, it becomes the basis for your interest earnings, with larger deposits receiving better rates. The APY will multiply your initial deposit to create a new, higher balance.

• Monthly Contribution: You add money to your account by making a deposit. Your initial deposit funds the account, while subsequent deposits increase that principal amount upon which interest rate compounds.

• Time to Grow: The period (usually expressed in years) over which your initial deposit or investment will grow. This figure is a key factor for an APY calculator because it determines how long your account will earn interest.

For instance, a $500 savings account compounding monthly with a 5% APY will earn $25.00 in interest after one year. On the other hand, letting the account sit for five years results in earnings of $138.14.

• APY (Annual Percentage Yield): When considering APY vs. APR, know that the APR is an annualized representation of how compounding interest grows your savings. Whether a savings account, CD, or other financial vehicle, your account will typically compound daily, weekly, monthly, or bimonthly.

Regardless of the frequency, APY vs. interest rate alone lets you see how much your account will increase over one year. The more your account compounds, the more your balance grows. As a result, more compounding creates a higher APY. Remember, APY provides a more accurate measure than the interest rate of your account’s rate of return because it calculates the effect of compounding.

• Compound Frequency: Compounding refers to when your deposit earns interest. However, financial products have different compounding rates, affecting how much you earn. For example, an account that compounds twice a year earns less than one that compounds every month (provided they have the same interest rate).

The greater the compounding frequency, the more often you earn interest, increasing the account’s APY. Because interest generates returns on both your deposits and past interest earnings, frequent compounding has a snowball effect, allowing your interest to build upon itself.

• Interest Earned: This expresses the interest earned by your initial deposit and any subsequent deposits over a specific period. APY calculators use the interest on the initial amount and any previously earned interest to project your total earnings per year.

• Total Contributions: The sum of all the subsequent deposits made into the account. Financial institutions may limit your total contributions by account type (such as a CD allowing only the initial contribution) or by amount (such as a $1 million balance limit for savings accounts).