1. What is Savings APY?

APY (Annual Percentage Yield) represents the real rate of return on your savings, accounting for compound interest. It shows how much you'll earn in a year, including the effect of compounding.

2. How Does the Calculator Work?

The calculator uses the APY equation:

Where:

• \( r \) — Annual interest rate in decimal form
• \( m \) — Number of compounding periods per year

Explanation: The equation calculates the effective annual rate when interest is compounded multiple times per year.

3. Importance of APY Calculation

Details: APY helps compare savings accounts with different compounding frequencies. A higher APY means more earnings on your savings.

4. Using the Calculator

Tips: Enter the annual interest rate as a decimal (e.g., 0.05 for 5%) and the number of compounding periods per year (e.g., 12 for monthly).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR doesn't account for compounding, while APY does. APY gives a more accurate picture of earnings.

Q2: How does compounding frequency affect APY?
A: More frequent compounding leads to higher APY, even with the same nominal rate.

Q3: What are typical compounding frequencies?
A: Common frequencies are daily (365), monthly (12), quarterly (4), and annually (1).

Q4: Can APY be less than the nominal rate?
A: No, APY is always equal to or greater than the nominal rate due to compounding.

Q5: How can I convert APY back to APR?
A: Use the formula: \( APR = m \times \left( \sqrt[m]{1 + APY} - 1 \right) \)