APR (the rate banks advertise) and APY (what you actually earn) are different. Compounding turns your APR into a higher effective yield. Use this calculator to see your real annual return and project your savings growth.
APR (Annual Percentage Rate) is the simple interest rate a bank advertises. APY (Annual Percentage Yield) is what you actually earn once compounding is factored in. The more frequently interest compounds, the higher your APY relative to your APR.
Formula: APY = (1 + APR/n)ⁿ − 1, where n is the number of compounding periods per year.
For FIRE planning, high-yield savings accounts and money market funds use daily or monthly compounding. Even a small difference in APY compounds significantly over years — which is why this number matters more than the advertised APR.