APY = (1 + r/n)^n – 1
r = annual interest rate as a decimal
n = number of compounding periods per year
Convert the percentage rate to a decimal before using the formula
Example: 5% annual rate compounded monthly
APY = (1 + 0.05/12)^12 – 1
APY = 0.05116
APY = 5.12%
For continuous compounding, use APY = e^r – 1
Compare APYs to find the highest effective return