APY (Annual Percentage Yield)
The yearly return on a savings or investment account, including the effect of compounding interest.
APY is the effective annual return on a deposit account, accounting for how often interest is compounded. A 5% APR with monthly compounding produces a slightly higher APY (~5.12%) because each month's interest earns interest the next month.
When comparing savings accounts, money-market accounts, or CDs, always compare by APY, not nominal rate. Two banks both advertising "5%" can produce different actual returns if one compounds daily and the other compounds quarterly — the daily-compounding bank pays you more.
The flip side of APR vs APY is one of the cleanest demonstrations of why compounding direction matters. As a borrower (APR), more frequent compounding hurts you. As a saver (APY), more frequent compounding helps you. Same math, opposite signs.
For most consumer savings products in the US, regulations require APY to be disclosed prominently — exactly so you can compare apples to apples without doing the compounding math yourself.
See also
- APR (Annual Percentage Rate) — The yearly cost of borrowing money, expressed as a percentage and including most fees — not just the interest rate.
- Compound interest — Interest earned not just on your original deposit, but on the interest that's already been added to it. The engine of long-term wealth.
- Yield — The income an investment produces, expressed as a percentage of its price. Different from total return — yield is just the income part.
Ask Cashowa about apy (annual percentage yield)
Apply this concept to your actual numbers — with verifiable math.