Savings Account APY Calculator
Understanding APY and How This Calculator Works
APY (Annual Percentage Yield) represents the real rate of return on a savings account after accounting for the effect of compounding interest. Unlike a simple interest rate, APY tells you how much you'll earn over a year if the interest is compounded at regular intervals.
Key Concepts
- Initial Deposit: The amount of money you place in the account at the start.
- APY (%): The annual yield expressed as a percentage. It already includes the effect of compounding.
- Compounding Frequency: How often the bank adds interest to your balance (monthly, daily, etc.). If you leave this blank, the calculator assumes the APY is already effective for the year.
- Number of Years: How long you plan to keep the money in the account.
Formula Used
If a compounding frequency n is provided, the future value (FV) is calculated as:
FV = P × (1 + (r / 100) / n)^(n × t)
Where:
- P = Initial Deposit
- r = APY percentage
- n = Compounding periods per year
- t = Number of years
If no compounding frequency is entered, the calculator treats the APY as an effective annual rate and uses:
FV = P × (1 + r / 100)^t
Practical Example
Suppose you deposit $5,000 in an account that offers an APY of 2.5% and you plan to keep the money for 5 years. If the interest compounds monthly (12 times a year), the calculation would be:
FV = 5000 × (1 + 0.025 / 12)^(12 × 5) ≈ $5,658.12
If you leave the compounding field blank, the calculator assumes the APY is already effective, giving:
FV = 5000 × (1 + 0.025)^5 ≈ $5,639.38
Why Use This Calculator?
Understanding how your savings grow helps you compare different accounts, set realistic financial goals, and make informed decisions about where to keep your money.