The stated annual interest rate before compounding.
This is the effective annual rate of return considering compounding.
APY helps compare investments with different compounding frequencies. Understand how to evaluate returns effectively with our advisors.
Annual Percentage Yield (APY) is the effective annual rate of return taking into account the effect of compounding interest. Unlike the simple nominal interest rate, APY reflects the total amount of interest you will earn in a year based on both the rate and the frequency of compounding (e.g., daily, monthly, quarterly, annually).
APY provides a more accurate way to compare the returns on different savings accounts or investments that may have the same nominal interest rate but different compounding periods.
The formula for APY is:
APY = [(1 + r/n)^n] - 1
Where:
The result is multiplied by 100 to express APY as a percentage. The higher the compounding frequency (larger 'n'), the higher the APY will be compared to the nominal rate.
APY (Annual Percentage Yield) includes the effect of compounding and represents the return earned. APR (Annual Percentage Rate) typically represents the rate charged on loans and often does *not* include the effect of compounding within the year, although it may include certain fees. APY is generally used for deposits/investments, while APR is used for loans.
Disclaimer: This calculator provides the APY based on the formula. Actual returns may be affected by fees, taxes, or changes in the nominal interest rate. Always verify the APY and terms with the financial institution.