How to Figure the APY on a Savings Account?
- 1). Determine the annual interest rate and the compounding method of the savings account. Even if a savings account does not openly display its APY (which it should) you can calculate the APY with these two pieces of information.
- 2). Use the APY formula to calculate the APY using the annual interest rate and compounding method. The formula for calculating APY is: APY= ((1 + i/n)^n) -- 1 where i is the nominal annual interest rate, and n is equal to the number of compounding periods over a year. For an account compounded monthly, n=12, daily n=365 and so on. Note that for an account that compounds yearly, n=1, and therefore no calculation is necessary, since APY will simply equal the stated nominal interest rate.
- 3). Use a different formula for large n values. For very large values of n, such as for continuously compounding accounts (which essentially have an infinitely large n value) use the formula: APY= e^i -1 where e is the base of the natural log, and i is the annual interest rate. Note that the higher the annual interest rate, the larger the impact compounding will have on APY.
- 4). Contact the bank offering the savings account and inquire about APY. Being able to calculate the APY of a savings account yourself is a useful skill, but any bank should be able to tell you the APY on its account even if it is not clearly stated. Chances are, if a bank does not openly state APY in addition to the annual interest rate on an account, the account compounds yearly, meaning the APY and nominal interest rate are one in the same.
