What Is APY?
APY stands for annual percentage yield. It is a standardized way of expressing the annual yield on many U.S. deposit accounts while taking compounding into account.
APY in simple terms
When a bank or credit union offers a savings account or CD, you may see both an interest rate and an APY. The APY reflects the total amount of interest paid over a year under the account's stated compounding assumptions.
That makes APY especially useful for comparing deposit products with different compounding schedules.
Interest rate vs APY
The interest rate tells you the stated rate paid on the account. APY goes one step further by reflecting the effect of compounding over the year.
This formula is a simplified mathematical illustration for a nominal rate compounded n times per year. Actual account disclosures follow the applicable U.S. rules and may use the required day-count conventions.
Example
Suppose an account has a nominal annual rate of 5% and compounds monthly. The effective annual yield is slightly above 5% because each month's interest can itself earn interest later in the year.
What to compare when shopping for a savings account
- APY
- Minimum opening deposit
- Minimum balance requirements
- Monthly maintenance fees
- Withdrawal or transaction restrictions
- Whether the rate is variable
- Whether the institution is FDIC insured, where applicable
Why APY is useful on CalculateYourInterest
If you are estimating savings growth, using the APY published by the institution can make your planning assumption easier to compare across accounts. For hypothetical scenarios, you can also explore how different rates and compounding assumptions affect future value.