How to Convert an APY to a Monthly Rate

Banks usually list the APY rather than the monthly rate.

APY is short for annual percentage yield, a measure of the interest rate that takes into consideration the number of times per year interest is compounded. However, if you are calculating the interest that accrues on your account each month, you need to be able to convert the APY to a monthly interest rate. To do so, you need a calculator capable of computing exponents. Exponents represent a number multiplied by itself a number of times. For example, nine to the fourth equals nine times nine times nine times nine.


Step 1

Convert the APY to a decimal by dividing by 100. For example, if your APY is 2.4 percent, you would divide 2.4 by 100 to get 0.024.

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Step 2

Add 1 to the APY expressed as a decimal. In this example, you would add 1 to 0.024 to get 1.024.


Step 3

Raise the result from step 2 to the 1/12 power using the calculator, since there are 12 times when interest is compounded per year. In this example, you would raise 1.024 to the 1/12th power to get 1.001978332.

Step 4

Subtract 1 from the result from step 3 to calculate the monthly rate expressed as a decimal. In this example, you would subtract 1 from 1.001978332 to get 0.001978332.



Step 5

Multiply the result from step 4 by 100 to convert the monthly rate from a decimal to a percentage. Finishing the example, you would multiply 100 by 0.001978332 to find the monthly interest rate to be 0.1978332 percent.



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