APY ↔ APR Converter
Banks quote CDs in two ways. Convert a nominal rate and its compounding frequency into APY — the only figure that compares fairly between offers.
Why banks publish two different numbers
The nominal rate (often labelled APR or “interest rate”) is the raw annual rate before compounding. APY is what you genuinely earn once credited interest begins earning interest of its own. Federal Truth in Savings rules demand APY in advertising precisely so savers can compare across banks — yet rate sheets, disclosures and phone quotes still lead with the nominal figure surprisingly often.
The higher the rate, the wider the gap. At 2% nominal, daily compounding adds two hundredths of a point. At 5% it adds nearly thirteen hundredths — $32 a year on $25,000. Hardly life-changing, but exactly the sort of difference that makes two “identical” offers unequal.
The direction people get backwards
Converting APY back into a nominal rate matters when you are checking a bank’s math or comparing against a product quoted the other way round — a bond yield, for instance. A CD advertised at 4.60% APY with monthly compounding is running a 4.51% nominal rate underneath. If a competitor quotes “4.55% rate, compounded monthly,” that works out at 4.65% APY and is the better offer, despite the smaller headline number.