How this calculator works
Divide the nominal annual rate by the number of equal compounding periods, then compound for one full year. All interest stays in the account. The model holds the rate constant and excludes fees and bonuses. Canada commonly calls this the effective annual rate.
Formula
APY = (1 + j/m)^m - 1, displayed as a percentage. j is the nominal annual rate as a fraction and m is the number of equal compounding periods in one year.
Worked example
A 5% nominal annual rate compounded monthly has an effective annual yield of 5.116190%. A 0% rate produces 0% yield at any permitted compounding frequency.
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Frequently asked questions
Why can APY exceed the nominal rate?
At a positive rate with more than one compounding period, retained interest earns further interest during the year.
Will this match every US APY disclosure?
This is the constant-rate full-year case. US disclosures may require actual term-day calculations or other account-specific treatment.
What happens if compounding is more frequent?
For a positive nominal rate, more compounding periods per year raise the APY. It approaches continuous compounding as the frequency increases.