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APR (annual percentage rate) and APY (annual percentage yield) differ because APY accounts for compounding. APY is always higher and shows the true return on savings or cost of credit.
Formula
APY = (1 + APR/n)ⁿ - 1, where n is compounding frequency per year
Guida passo passo
- 1Enter APR as a decimal
- 2Select compounding frequency (daily, monthly, quarterly, annual)
- 3Calculate APY using the formula
Esempi risolti
Ingresso
APR = 5%, daily compounding
Risultato
APY ≈ 5.127%
(1 + 0.05/365)³⁶⁵ - 1
Errori comuni da evitare
- ✕Treating APR and APY as equivalent
- ✕Wrong compounding frequency
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