This APY calculator estimates the annual percentage yield value by considering the nominal interest rate and the compounding frequency (from daily up to annually). Everything there is to know on estimate this indicator is explained below the tool.
How does this annual percentage yield calculator work?
This finance tool may help you compare the interest rate on savings that have different compounding frequencies, so that to figure out which is the best offer.
The algorithm behind this annual percentage yield APY calculator is based on the APY formula explained below that considers the annual/nominal interest rate offered by the financial institution and the compounding frequency of the product you analyze:
APY = (1 + APR/n)n – 1
APR = Annual/Nominal interest rate
n = the compounding interval index that can have the following values:
-Daily has n = 365
-Weekly has n = 52
-Bi-weekly has n = 26
-Semi-monthly has n = 24
-Monthly has n = 12
-Quarterly has n = 4
-Semi-annually has n = 2
-Annually has n = 1
Example of a result
An APR of 5.25% compounded daily is equivalent to an APY of 5.3899%.
What is APY?
Often abbreviated as APY, the Annual Percentage Yield is a relevant financial indicator on savings account that helps in comparing the interest rates that have different compounding intervals. It is often called as Effective Annual Rate (EAR).
For instance, in one offer you may see that the bank offers an interest annual interest of 1.5% compounded monthly, while in other offers you may find that some financial institutions have an interest of 1.6% compounded annually. Which one offers you the highest actual interest, as the above quotes can not be compared directly between them? In order to perform the comparison all you have to do is use either this APY calculator or the before explained equation.
APY or APR
Since APY stands for the effective annual rate and APR for annual/nominal percentage rate, it is easily observable from financial point of view that the effective has a higher relevancy than nominal, thus you should prefer looking for it at least in case of savings plans where you have to compare different quotes.
Please note that a comparison between APY &. APR is a big mistake as they both represent the cost of the money but with different units. In case of mortgages most of the lenders express their offers in APR, as this figure is used to show easily the costs by comparable quotes, while APY is often used by banks in case of savings accounts with compounding interest.
Compounding interest made by different intervals has a big advantage in comparison to the simple one as it can ensure a bit higher growth rate of your savings.23 Jan, 2015 | 0 comments