What is the difference between APR and APY?

APR (Annual Percentage Rate) is the stated rate before compounding. APY (Annual Percentage Yield) accounts for compounding within the year and is always equal to or higher than APR. For savings accounts, the advertised rate is almost always APY, which is what this calculator uses.

Are the interest earnings taxable?

Yes. Interest earned in a standard savings account is taxable as ordinary income in the year it is credited, even if you leave it in the account. High-yield savings in a Roth IRA are an exception — growth and qualified withdrawals are tax-free.

Savings

Savings Account Interest Calculator

Most savings accounts compound interest daily or monthly and express their rate as an Annual Percentage Yield (APY). This calculator shows how your balance grows when you start with an initial deposit and optionally add money each month — letting you see the compounding effect clearly.

Savings Interest

How it works

Formula & methodology

For a lump-sum deposit: Balance = Principal × (1 + APY/12)^(Months). For regular monthly contributions added at the start of each period, the balance is the sum of the compounded lump sum and the future value of an annuity due. Interest Earned = Final Balance − (Principal + Total Contributions).

Source: FDIC: How savings account interest works

Example

Worked example

Example: $5,000 initial deposit at 4.5% APY plus $200/month for 3 years (36 months) grows to roughly $14,086 — of which $1,886 is interest earned.

FAQ

Frequently asked questions

What is the difference between APR and APY?: APR (Annual Percentage Rate) is the stated rate before compounding. APY (Annual Percentage Yield) accounts for compounding within the year and is always equal to or higher than APR. For savings accounts, the advertised rate is almost always APY, which is what this calculator uses.
Are the interest earnings taxable?: Yes. Interest earned in a standard savings account is taxable as ordinary income in the year it is credited, even if you leave it in the account. High-yield savings in a Roth IRA are an exception — growth and qualified withdrawals are tax-free.

Tips

Practical tips

Compare APY, not APR, when shopping for savings accounts or CDs — APY already reflects compounding and is the true rate you'll earn.
High-yield online savings accounts frequently offer 4-10x the APY of traditional big-bank savings accounts with the same FDIC protection — shop around before parking cash.

Results are estimates for general informational purposes only and do not constitute financial, tax, or legal advice. Always confirm important figures with a qualified professional or your lender before making a financial decision.