APR against APY you can drag
Drag the solid bar to set the APR. The taller bar is the APY, the same rate after compounding. The default run is 5 percent compounded monthly, which is a 5.116 percent yield. Raise the APR toward card rates and the gap becomes whole points.
APY, after compounding
5.116%
Gap above the APR
0.116 pts
Drag the solid APR bar. The shaded bar is the yield after compounding monthly. Illustrative arithmetic, not a quote or advice.
In short
- Drag the solid bar up to raise the APR. The yield bar follows, always at or above it.
- Change the compounding frequency. Monthly against daily moves the yield much less than the rate itself does.
- Push the APR toward 25 percent to see the gap that a card quote leaves out.
- Set compounding to once a year, where the two bars land on top of each other.
A quoted rate and a rate you get
APR is one period's rate multiplied up to a year. APY is what a balance actually grows by once interest starts earning interest. The conversion is .
At 5 percent compounded monthly the yield is 5.116 percent. At 24.99 percent the yield is 28.0606 percent. The first gap is a few tenths. The second is three points. Frequency matters far less than the rate: daily against monthly at 5 percent is a hundredth of a point.
How APR and APY work is the algebra. APR against APY is which label a product is required to show you, and what fees sit inside a US loan APR.
Convert before you compare
An account advertising a slightly higher APY can still lose to a slightly lower APR that compounds monthly, because that APR is worth more once the compounding is put back in. Convert everything to APY first. An APR quoted with no frequency cannot be ranked at all.
Reading APR as a nominal rate is a US convention. Elsewhere the same three letters often already mean an effective rate. Check the convention before ranking quotes from two countries.
The ceiling on frequency
As compounding gets more often, the yield approaches rather than running away. At ordinary deposit rates that ceiling is a few hundredths above monthly compounding. A quarter of a point on the rate itself beats every possible improvement in frequency combined. The compound interest explorer runs the same mechanism forward over many years, where a fraction of a point turns into a gap worth reading.
Common questions
Why is APY always the taller bar?
Whenever interest is added more than once a year, compounding adds something. The two bars match only when compounding happens exactly once a year. APY cannot sit below APR at a positive rate and a frequency of one or more.
Does this include loan fees?
No. This is the compounding conversion only. A US closed-end loan APR also carries certain required charges, which this picture does not unpack. The compare page is that second difference.
Is the APR on the slider a forecast?
No. It is a quoted rate you set, held steady for a year, which is what makes two bars comparable. Real rates move. It is educational material, not advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.