APY vs. APR: The Key Distinction
APR is the base interest rate. APY is the effective rate after compounding — always equal to or higher than APR. At 4.65% APR with daily compounding the resulting APY is approximately 4.76%. Banks advertise APY for savings because it is the larger and more meaningful annual number.
APY vs. APR at various compounding frequencies
| Compounding Freq. | APR | APY | Difference |
|---|---|---|---|
| Annual | 4.65% | 4.65% | 0.00% |
| Monthly | 4.65% | 4.75% | +0.10% |
| Daily | 4.65% | 4.76% | +0.11% |
The Daily Compound Interest Formula
Formula: Balance x (1 + APR/365)^(365 x Years). Example: $15,000 at 4.75% APR for 1 year = $15,000 x (1 + 0.0475/365)^365 = $15,729. Interest earned: $729. Simple interest would yield only $712.50 — compounding adds $16.50 in year one alone.
Year 1: $20,000 x 1.0500 = $21,000. Year 2: $21,000 x 1.0500 = $22,050. Year 3: $22,050 x 1.0500 = $23,153. Each year the interest earned grows because you earn interest on prior interest — that is compound interest.
Daily and monthly interest accrual at 4.75% APY
| Balance | APY | Daily Interest | Monthly Credit | Annual Total |
|---|---|---|---|---|
| $10,000 | 4.75% | $1.30 | $39.58 | $475 |
| $25,000 | 4.75% | $3.25 | $98.96 | $1,188 |
| $50,000 | 4.75% | $6.51 | $197.92 | $2,375 |
| $100,000 | 4.75% | $13.01 | $395.84 | $4,750 |
What Reduces Your Effective APY in Practice
The advertised APY assumes your full balance earns the rate continuously. In reality fees reduce net yield, tiered minimums may apply, mid-year rate changes affect your annualized return, and taxes reduce the real after-tax return you take home.
- Fees: $5/month on $5,000 erases 1.2% of effective yield
- Tiered minimums: sub-minimum balances earn lower rates at some banks
- Rate changes: a mid-year Fed cut reduces your annualized return below the opening APY
- Taxes: federal plus state rates reduce your real after-tax yield meaningfully
Calculate Your Exact HYSA Earnings
Enter your balance and APY to see daily, monthly, and annual interest projections automatically.