APY Comparison Calculator
APY Comparison Calculator
Banks advertise rates with different compounding frequencies — one savings account might offer 5% compounded monthly, another 5.1% compounded annually. Comparing the nominal rates alone is misleading; only the effective annual yield (APY) tells you which one truly earns more.
Shoppers comparing savings accounts, CDs, or loan offers use this side-by-side comparison to avoid being misled by a headline rate that looks better but actually yields less once compounding frequency is properly accounted for.
- Same Math, Two Offers: Converts both nominal rates to APY using the standard compounding formula, then compares them directly.
- A Lower Nominal Rate Can Win: More frequent compounding can make a lower advertised rate actually yield more than a higher rate compounded less often.
- Always Compare APY, Not Nominal Rate: This is the single most important rule when shopping for savings accounts or comparing loan offers.
Why would a bank advertise a lower rate that compounds more often?
Marketing sometimes emphasizes the nominal rate rather than APY since it can look attractive on its own — always check the actual APY disclosed (required by law in many countries) rather than just the headline rate.
Does this work for comparing loan offers too?
Yes — the same logic applies to loans: a lower nominal APR compounded more frequently could have a higher effective cost than a slightly higher APR compounded less often.
APY Comparison Calculator
Banks advertise rates with different compounding frequencies — one savings account might offer 5% compounded monthly, another 5.1% compounded annually. Comparing the nominal rates alone is misleading; only the effective annual yield (APY) tells you which one truly earns more.
Shoppers comparing savings accounts, CDs, or loan offers use this side-by-side comparison to avoid being misled by a headline rate that looks better but actually yields less once compounding frequency is properly accounted for.
- Same Math, Two Offers: Converts both nominal rates to APY using the standard compounding formula, then compares them directly.
- A Lower Nominal Rate Can Win: More frequent compounding can make a lower advertised rate actually yield more than a higher rate compounded less often.
- Always Compare APY, Not Nominal Rate: This is the single most important rule when shopping for savings accounts or comparing loan offers.
Why would a bank advertise a lower rate that compounds more often?
Marketing sometimes emphasizes the nominal rate rather than APY since it can look attractive on its own — always check the actual APY disclosed (required by law in many countries) rather than just the headline rate.
Does this work for comparing loan offers too?
Yes — the same logic applies to loans: a lower nominal APR compounded more frequently could have a higher effective cost than a slightly higher APR compounded less often.