How this number is made
APY is the yield after a year of compounding. This page turns it into a monthly growth rate and applies it to a balance you leave alone. New deposits are the compound-interest page.
- Use the APY the bank advertises, not a nominal rate that compounds daily unless that APY is what they published.
- Months can be less than a year. The APY is still the annual yield.
Formula
Monthly rate = (1 + APY) ^ (1/12) − 1. Interest = balance × ((1 + monthly rate) ^ months − 1).
Worked example
With the figures already in the form, interest earned is $504.00.
Questions
Why not balance times APY?
That is right for a full year. For any other length, the monthly rate that compounds to the APY is the honest step.
Is the interest taxed?
Yes, generally, even if you leave it in the account. This page is the interest paid, not the after-tax amount.