Interest rate (r). This is the interest rate that the bank quotes for savings accounts of your type. Pay attention to the different rates for different types of accounts. For example, a money market account will generally have a higher interest rate than a savings account, and a savings account will have a higher interest rate than a checking account (if the checking account earns any interest at all). The rate should be expressed as a decimal, so a number like 3% would be used as 0. 03. Compounding frequency (n). Ask a lending official at the bank how often the bank compounds interest per year.
APY=(1+rn)n−1{\displaystyle {\text{APY}}=(1+{\frac {r}{n}})^{n}-1}
APY=(1+rn)n−1{\displaystyle {\text{APY}}=(1+{\frac {r}{n}})^{n}-1} APY=(1+. 014)4−1{\displaystyle {\text{APY}}=(1+{\frac {. 01}{4}})^{4}-1} APY=1. 00254−1{\displaystyle {\text{APY}}=1. 0025^{4}-1} APY=0. 010038{\displaystyle {\text{APY}}=0. 010038} You probably need an advanced calculator to perform the exponent function for this calculation. Most simple calculators have, at most, a button for squaring a number. You will need a more advanced calculator with a “^” button to raise the number to any chosen exponent.
Technically the number of days in a year is probably more accurately represented as 365. 25. That difference could become meaningful with large amounts of money. For this example, however, just use n=365{\displaystyle n=365}. APY=(1+rn)n−1{\displaystyle {\text{APY}}=(1+{\frac {r}{n}})^{n}-1} APY=(1+. 01365)365−1{\displaystyle {\text{APY}}=(1+{\frac {. 01}{365}})^{365}-1} APY=1. 0025365−1{\displaystyle {\text{APY}}=1. 0025^{365}-1} APY=0. 01005{\displaystyle {\text{APY}}=0. 01005}
Interest. This is the amount of interest that you earned over a specified period of time. You will need good bank records or a periodic bank report to get this number. Principal. This is the amount of money that you held in your account to earn the interest. If the amount of principal changes over time, you will need to perform separate calculations for each time period that the principal is constant, and add them together. Days. This is the number of days that the Principal remained in the account when the interest accrued.
APY=100[(1+IP)365d−1]{\displaystyle {\text{APY}}=100[(1+{\frac {I}{P}})^{\frac {365}{d}}-1]} I{\displaystyle I} is the interest earned P{\displaystyle P} is the amount of principal d{\displaystyle d} is the number of days
APY=100[(1+IP)365d−1]{\displaystyle {\text{APY}}=100[(1+{\frac {I}{P}})^{\frac {365}{d}}-1]} APY=100[(1+605000)365182. 5−1]{\displaystyle {\text{APY}}=100[(1+{\frac {60}{5000}})^{\frac {365}{182. 5}}-1]} APY=100[(1. 012)2−1]{\displaystyle {\text{APY}}=100[(1. 012)^{2}-1]} APY=100[(1. 024144−1]{\displaystyle {\text{APY}}=100[(1. 024144-1]} APY=100[0. 024144]{\displaystyle {\text{APY}}=100[0. 024144]} APY=2. 4144%{\displaystyle {\text{APY}}=2. 4144%} The final step of the calculation, multiplying by 100, is just to transform the decimal figure into a percentage.
Be careful to read the calculator site carefully. Some offer to help you calculate APY, while others offer to calculate your savings after you enter the APY. Either is fine, as long as you know what you are using. This article focuses on calculating the APY itself.
For example, if the calculator asks you to enter a percentage (%), you will enter the number 1 for a 1% interest rate. If you were asked for a decimal, then you would have to convert it to 0. 01.
For example, if you are working with a bank that compounds interest quarterly, then you would either enter the number 4, for 4 times a year, or the word “quarterly. ” You will have to read the instructions on the website to make the correct choice.
