The Axos APY Calculator helps you calculate the future value of your savings by considering the initial deposit, the interest rate, and the frequency of compounding. Knowing the potential growth of your investments can greatly influence your saving strategies and help you make more informed financial decisions.
Formula aof Axos APY Calculator
The formula used by the Axos APY Calculator is:
Ending Balance = Initial Deposit * (1 + Effective Interest Rate)^Number of Compounding Periods + Total Monthly Deposits (adjusted for compounding)
Explanation of Variables:
- Ending Balance: The total amount in your account at the end of the period.
- Initial Deposit: The sum of money initially deposited.
- Effective Interest Rate: Adjusted based on compounding frequency. Calculated as follows:
- (1 + APR/Number of Compounding Periods) – 1 (if APR is provided)
- APY (if APY is provided instead of APR)
- Number of Compounding Periods: Determined by the frequency of compounding (e.g., monthly, daily).
- Total Monthly Deposits (adjusted for compounding): Includes all your monthly deposits, adjusted for the interest they accrue over the period.
Example of a Useful Conversion Table for the Axos APY Calculator
Here is an example of a conversion table that might be useful for users of the Axos APY Calculator. This table provides quick references for common financial terms and their implications, which can aid in easier and faster use of the calculator:
| Term | Definition | Example |
|---|---|---|
| APY (Annual Percentage Yield) | The effective annual rate of return taking into account the effect of compounding interest. | If the APY is 2%, a $1,000 deposit will grow to $1,020 over a year assuming no additional deposits or withdrawals. |
| APR (Annual Percentage Rate) | The annual rate charged for borrowing or earned through an investment without compounding. | An APR of 2% on $1,000 yields $20 interest over a year without compounding. |
| Compounding Frequency | How often the interest is calculated and added to the account balance. | Monthly, quarterly, or annually. Daily compounding means interest is calculated and added every day. |
| Initial Deposit | The starting amount of money put into the savings or investment account. | Initial deposit of $5,000 into a savings account. |
| Monthly Deposit | Regular contributions added to the account each month. | Adding $500 every month to the savings account. |
Step-by-Step Calculation Example
Here’s a concise example of using the Axos APY Calculator:
Setup:
- Initial Deposit: $5,000
- Monthly Deposit: $300
- APR: 4%
- Compounding: Monthly
- Duration: 3 years (36 months)
Calculating Effective Interest Rate:
Convert APR to a monthly rate for compounding:
Effective Interest Rate = (1 + APR/12) – 1 = (1 + 0.04/12) – 1 = 0.0033 (0.33% per month)
Total Compounding Periods:
Total Compounding Periods = 36 months
Adjusted Monthly Deposits:
Assume each deposit compounds from the deposit month to the end:
Adjusted Monthly Deposit = Monthly Deposit * (1 + Effective Interest Rate)^(36 – month of deposit)
Apply this to each month, adjust for the deposit time, and sum all.
Calculate Ending Balance:
The future value includes the initial deposit and the sum of all adjusted deposits:
Example Calculation:
- Initial Deposit Growth: $5,000 growing with interest for 36 months.
- Adjusted Deposits: Each $300 deposit grows monthly; calculate each and sum up.
Estimated Ending Balance: Combine the grown initial deposit with the total of the grown monthly deposits to get the ending balance, which might be around $17,483, illustrating the accumulation effect of regular investments and compounding interest.
Common FAQs
Answer: APR (Annual Percentage Rate) is the yearly interest rate without considering compounding. APY (Annual Percentage Yield), on the other hand, includes the effects of compounding, which can increase the yield over the period. APY provides a more accurate representation of what you will earn in a year.
Answer: Compounding frequency refers to how often your interest is calculated and added to your balance. The more frequently the interest is compounded, the more interest you will earn on your interest. For example, daily compounding will yield a slightly higher amount compared to monthly compounding due to the more frequent addition of interest to the account balance.
Answer: Yes, the Axos APY Calculator can be used for any type of account that earns interest, such as savings accounts, certificates of deposit (CDs), and other investment accounts. It helps you understand how different rates and compounding frequencies will affect your investments over time.