Effective Interest Rate & APY Calculator
Convert nominal rates to APY and back, and compare two deposit offers with compounding, fees and tax — because the advertised rate is not the whole story.
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Effective annual rate (APY)
6.1678%
6% nominal with monthly compounding.
Monthly compounding increases the effective annual rate from 6.00% nominal to approximately 6.17%.
APR, AER, EAR and APY terminology varies by product and country — deposit APY and lending APR are not interchangeable.
These estimates are for general planning only and are not financial, tax, investment or banking advice. Actual interest, fees, taxes, inflation and product terms may differ. This calculator does not display live rates or represent an offer from a bank or financial institution.
Assumptions and conventions
- APY / effective annual rate = (1 + nominal/m)^m − 1 (continuous: e^r − 1). Net effective return = ((deposit + net interest − fees) ÷ deposit)^(1/years) − 1.
- Rates entered are assumptions, not live offers.
- The break-even deposit uses first-year interest — a documented approximation.
- Deposit APY and lending APR are different concepts; this tool never converts one into the other automatically.
- Values are calculated at full precision and rounded for display; columns may differ from totals by a small rounding amount.
What this calculator does
A 6% rate compounded monthly actually yields 6.17% a year — the effective annual rate, called APY in the US and AER in the UK. This tool converts in both directions and, in compare mode, evaluates two deposit offers over your holding period including compounding differences, annual fees, one-time fees and optional tax.
Terminology varies by product and country: APY and AER describe deposit yields, while APR usually describes borrowing cost and often ignores compounding. This calculator never treats an advertised lending APR as a deposit APY.
Why the deposit amount matters
Percentage rates scale with the deposit but fixed fees do not. A higher rate with a fixed fee loses on small balances and wins on large ones; the calculator reports the break-even deposit where the ranking flips (on a first-year basis).
Formula
APY / effective annual rate = (1 + nominal/m)^m − 1; continuous compounding: e^r − 1. Nominal from effective: m·((1+E)^(1/m) − 1).
Net effective annual return = ((deposit + net interest − fees) ÷ deposit)^(1/years) − 1. Break-even deposit ≈ fee difference ÷ (EAR₁ − EAR₂), a first-year approximation.
Assumptions
- Rates are your inputs, not live offers.
- Fees: annual fees accrue per year of holding; one-time fees apply once; both reduce net interest.
- APR, AER, EAR and APY naming varies by product and country — check what your product's figure includes.
Content and formulas reviewed on 2026-08-06. See our methodology for how calculations are built and tested.
Worked example
Offer A: 6.5% monthly compounding with a 100 annual fee. Offer B: 6% monthly, no fee. On a 10,000 deposit over one year, A earns about 670 gross but 570 net — less than B's 617. The break-even is roughly 19,400: above it, A's rate advantage outweighs the fee.
Frequently asked questions
What is the difference between the nominal rate and APY?
The nominal rate ignores compounding; APY includes it. 6% nominal compounded monthly is a 6.17% APY. Compare products on APY (or AER/EAR), never on nominal rates with different compounding.
Does more frequent compounding always produce a better return?
At the same nominal rate, yes — but the gain shrinks fast: daily beats monthly by only a few hundredths of a percent. A slightly higher nominal rate usually matters more than compounding frequency.
How do fees affect the effective return?
Fixed fees hit small deposits hardest: a 100 fee is 1% of 10,000 but 0.1% of 100,000. The net effective return in this tool includes them, and the break-even deposit shows where two offers swap ranking.
Are APR, APY, AER and EAR the same?
No. APY (US) and AER (UK) are effective deposit yields including compounding; EAR is the same mathematics generically; APR is usually a borrowing rate and often excludes compounding. Products and countries use these labels inconsistently — check the definition behind the number.
Is tax included?
Only if you enter a tax rate on interest; treatment varies by country and person.
These estimates are for general information only and are not financial, tax, legal, or investment advice. Rates, fees, and lending rules vary by lender and country. Actual costs and outcomes may differ from the projections shown.