How to Convert APY to APR

When dealing with investments and finance, APY and APR are two terms commonly thrown around. APY refers to annual percentage yield, and APR is the annual periodic rate. These are most commonly calculated by banks, and many people want to know how to convert APY to APR on their own. This may seem complicated, but in fact is very easy once you know the steps and basic math involved. In almost all cases, the number of periods will be 12 for the sake of the formula, since most banks compound interest monthly and there are 12 months in a year.

Add APY and 1 together. For example, if the APY is 5 percent, then 5 + 1= 6.

Divide 1 by the number of periods in a year. The number of periods in a year is usually 12, since most banks compound monthly. Ex: 1/12 = .83

Raise the number obtained in Step 1 exponentially by the number obtained in Step 2. Example: 6 ^.83= 1.16

Subtract 1 from the number obtained in Step 3. This will give you the periodic rate. Example: 1.16 - 1= .16

Multiply the periodic rate by the number of periods, since the formula for APR is the periodic rate multipled by the number of periods. The resulting number will be the APR. Example: 12 x .16= 1.92. (1.92 would be the APR)