Two accounts with the same rate can pay different amounts. APY shows the real yield.
An effective annual yield (APY) calculator converts a nominal interest rate and its compounding frequency into the true yearly yield, what you actually earn once compounding is counted.
Two accounts can quote the same nominal rate yet pay different amounts, because interest that compounds more often earns interest on itself sooner. APY = (1 + rate/n)^n − 1 captures this, turning a stated rate into the real yearly yield. Daily compounding beats monthly, which beats annual, for the same nominal rate.
Because APY already folds in compounding, it's the honest basis for comparing savings accounts and CDs, which is why banks are required to quote it. When you shop rates, line up APY against APY rather than nominal against nominal, and the account that actually pays more becomes obvious.
APR is the stated nominal rate; APY is what you actually earn after compounding. APY is always at least as high as APR and rises with more frequent compounding.
APY = (1 + rate ÷ n)^n − 1, where n is the number of compounding periods per year.
More frequent compounding means interest starts earning interest sooner, raising the effective yield for the same nominal rate.
See the exact formula and a worked example on our methodology page.