Table of Contents

Toggle## What is an Annual Percentage Yield (APY)?

APY is an investment’s real rate of return after considering compound interest.

## How does annual percentage yield work?

Annual percentage yield (APY) will tell you the rate of return you can expect from an investment. This measurement is helpful because it takes into consideration the impact that compounding interest will have on your returns.

**Compound interest** is calculated periodically, often monthly, and the amount earned is then added to the balance of your investment. Next time, when compounding interest is calculated, it will use the new, higher balance. Compounding interest is a great way to make more money when investing.

APY can be compared to the annual percentage rate (APR), though APR is used when you loan or borrow money. APY will vary depending on the type of investment you make, so be sure to do your research prior to investing money.

## How do I use the APY calculator?

APY is very easy to calculate. All you need to know is the rate within each period and the number of compounding periods.

Enter your starting balance, interest rate, compounding frequency, and time into the calculator above. You can also modify and supplement these variables by selecting **Edit Formula**.

## How do I use the APY calculator?

## What is annual percentage yield vs. interest rate?

When you make an investment, you might see two different measurements: the interest rate and the APY. While the two are closely related, the interest rate does not account for compound interest. So, you might see that the interest rate is 5% and the APY is, letโs say, 5.25%. The two will likely be close, but that extra quarter of a percentage point can lead to big earnings when you invest.

## Can annual percentage yield be greater than 100?

It is very rare to find an investment with an APY over 100%, though it is possible. Some cryptocurrency investments advertise APYs this high. However, those investments can be very risky and an APY does not even have to be in the double digits to offer high rates of return.

## Is a 0.01% APY good?

A โgoodโ APY is dependent on the type of investment youโre making. If you put your money into a savings account with a 0.01% APY, you will still make money over time, even if it happens slowly. This is better than keeping your money in an account with no returns.

However, you can find high-yield savings accounts that offer 2% or more. This is why itโs so important to shop around before you make an investment. If youโre investing in stocks, you can often find APYs of 10% or higher!

## Which banks have the highest APY?

Online banks tend to offer higher APYs than banks with brick-and-mortar locations. According to Bankrate, some of the best APY offerings for savings accounts are:

- Bask Bank: 2.20%
- My Banking Direct: 2.20%
- CIT Bank: 2.10%
- Citizens: 2.10%
- Synchrony 2.05%

Keep in mind that APY is simply a tool that helps you comparison shop. No matter where you are located, look around at different offerings in your area and online for the best results.

## What is the difference between APY and APR?

Annual percentage yield (APY) and annual percentage rate (APR) are often confused. The major difference is that APY takes into account compounding interest, but APR does not.

We often see APR used when we borrow money. Since the APR will be slightly lower, lenders like to advertise this number. When investing, APY is the most commonly published metric because itโs higher and signals to investors a better return. Letโs take a quick look at where you might see APR vs. APY:

**Annual Percentage Yield (APY)**

- Stocks
- Bonds
- CDs
- Savings accounts

**Annual Percentage Rate (APR)**

- Credit cards
- Personal loans
- Mortgages

## Is variable APY better than fixed APY?

Some investment vehicles, such as CDs, offer the option to choose a fixed or variable-rate APY. Fixed APYs are exactly that, fixed. They usually donโt change throughout the lifetime of your account, or at least donโt change often. Variable APYs will change depending on a number of external economic factors.

Fixed APYs might sound like a great idea, but if the Federal Reserve raises interest rates, a variable APY will be better. Most checking and savings accounts will offer a variable APY, but itโs not impossible to find a fixed APY.

## Does the APY of an investment matter?

The APY of an investment will help you compare various investment opportunities. You can comb through different accounts and offers to find investments by APY to find the highest return possible. This metric is helpful for comparing potential returns. Just keep in mind that fees and other terms may also apply.

## What is the difference between APY and APR?

APY differs from the annual percentage rate (APR) of an investment by way of compounding returns. While both metrics consider annual returns, APR calculations do not add returns to the investor’s principle when calculating total yield.

## What is the difference between APY and EAR?

Effective annual rate, or EAR, is exactly the same thing as APY. Therefore, the free tools above can be considered an effective annual rate calculator.

## What is the formula for APY?

The formula for APY is:

APY = (1 + {\text{i} \above{1pt} \text{N}} )^n - 1

**Where:**

APY = annual percentage yield

i = nominal interest rate

N = number of compounding periods per year

Updated July 12th, 2023 at 09:09 am by Jerica Kingsbury. Reviewed by Corey Northcutt.

#### Return on Investment (ROI) Over Time

#### Return on Investment (ROI) Summary

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