APY (Annual Percentage Yield)
The effective annual rate of return on savings, accounting for compound interest.
What You Need to Know
APY shows how much you'll actually earn on savings or investments in one year, including the effect of compound interest. The more frequently interest compounds (daily vs. monthly), the higher your APY.
For example, a savings account with a 4.00% interest rate compounding daily has an APY of 4.08%. That extra 0.08% comes from earning interest on your interest.
Why It Matters: When comparing savings accounts or CDs, always look at APY—not the interest rate. A 4.5% APY account will always earn more than a 4.5% interest rate account.
Sources & References
This information is sourced from authoritative government and academic institutions:
- fdic.gov
https://www.fdic.gov/resources/consumers/consumer-news/2022-05.html
- investopedia.com
https://www.investopedia.com/terms/a/apy.asp
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
APY to APR Calculator
Convert between APY and APR, compare compound interest rates, and understand effective vs nominal rates
APY to APR Converter
Convert Annual Percentage Yield to APR with daily compounding and forecast future value, interest earned, and effective gains.
High-Yield Savings Impact Tool
Compare savings at 0.01% vs 4.5% APY over time
Related Terms in Banking & Savings
CD Ladder
A savings strategy where you divide money across multiple CDs with different maturity dates to balance higher rates with liquidity.
Cash Back
A credit card reward that returns a percentage of your spending as cash, typically 1-5% depending on the category.
High-Yield Savings Account
A savings account that pays significantly higher interest rates (typically 4-5% APY) than traditional bank accounts (0.01% APY), usually offered by online banks.
Rolling CD
A CD laddering strategy where you invest in multiple CDs with different maturity dates to balance higher yields with liquidity needs.