CD APR Calculator

• How do you calculate APR on a CD?

  APR = n × ((1 + APY)^(1/n) − 1), where APY is the quoted yield as a decimal and n is the number of compounding periods per year. It converts an effective annual yield back into the nominal rate that is actually applied at each compounding period. A 4.60% APY compounded daily corresponds to a 4.50% APR. You need this conversion whenever a bank hands you an APY but a calculator, a spreadsheet or a comparison expects a nominal rate — entering an APY where a nominal rate belongs applies compounding a second time and overstates the result. APR is always the lower of the two figures on any account compounding more than once a year, and the gap widens as the rate and the compounding frequency rise. It is the rate the bank works with internally; APY is the rate it advertises.

• Which is higher on a CD, APR or APY?

  APY is higher on any CD that compounds more than once a year, and the two are identical only when interest compounds exactly annually. The reason is that APY includes the effect of interest earning interest, while APR is the plain nominal rate applied at each compounding period. A 4.40% APR compounded daily produces a 4.50% APY — a gap of ten basis points that widens as either the rate or the compounding frequency increases. On a $10,000 deposit that difference is worth about $10 over a year, which sounds trivial until you compare two offers where one is quoted as APR and the other as APY and assume they are equivalent. They are not. Regulation DD requires US institutions to disclose APY precisely so that offers can be compared on a single consistent number.

• Why do banks advertise APY instead of APR on CDs?

  Two reasons, and only one of them is marketing. Regulation DD, the Truth in Savings rule at 12 CFR Part 1030, requires US institutions to disclose APY on deposit accounts, so it is a legal obligation rather than a choice. The reason the rule exists is that APY is genuinely the more useful figure: it folds compounding frequency into one number, so a CD paying 4.40% compounded daily and one paying 4.50% compounded annually can be compared directly — they are both 4.50% APY and identical for a saver. The marketing benefit is real too, since APY is always the higher of the two figures on an account compounding more than once a year. On $10,000 over a year the difference is around $10, so the advertising advantage is smaller than the comparability benefit.

• Wzory zgodne ze standardem bankowym

  Stosuje te same konwencje procentu składanego i APY co banki objęte Regulation DD.

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