The real number
Why a quoted rate isn’t the rate you earn
An 8% savings account doesn’t earn 8%. Not exactly, anyway. The 8% is the nominal annual rate — the headline. The actual yield, once compounding does its work, is slightly higher. APY puts a number on that gap.
The formula
APY = (1 + r/n)^n − 1
r is the nominal annual rate as a decimal, n is the number of compoundings per year. Plug 0.08 and 12 in: APY = (1 + 0.08/12)^12 − 1 = 0.0830 = 8.30%. Same maths the calculator above runs in the background.
APY by compounding frequency (8% nominal)
- Yearly: 8.000% — no compounding effect, APY equals nominal.
- Half-yearly: 8.160%.
- Quarterly: 8.243%.
- Monthly: 8.300%.
- Daily: 8.328%.
The bulk of the uplift comes from yearly → monthly. After that, going to daily adds less than three basis points. That’s the practical point: focus on the headline rate, not on whether the bank compounds daily vs monthly.
APR vs APY
Same maths, different application:
- APR (Annual Percentage Rate) — typically the nominal rate, used for loans. What you pay.
- APY (Annual Percentage Yield) — the effective rate including compounding, used for savings and investments. What you earn.
Banks tend to advertise whichever flatters them. On a loan, they quote APR (lower) and let the compounding cost you more silently. On a savings account, they sometimes quote APY (higher) to make the rate look better. Always ask which one you’re being shown — and convert if you’re comparing two products quoted differently.
When APY misleads
Two situations to watch for.
- Tiered rates. Some SA banks pay a higher rate above certain balance thresholds (e.g. 4% APY on the first R10,000, 7% APY above that). The advertised APY is usually the top tier, which only applies to the portion above the threshold. Read the fine print.
- Fees. APY is the gross yield. Monthly account fees, withdrawal fees, and inactivity fees all erode the effective yield without showing up in the APY number. A 7% APY account that charges R50/month in fees on a R10,000 balance is effectively earning closer to 1% APY.
The one question to ask the bank
When you’re comparing savings products, ask each bank: “What’s the APY on R[my balance], all-in, after fees?” That number is comparable across banks. Anything else isn’t. If they can’t answer cleanly, that’s a flag.