APY

Annual Percentage Yield

APY is the effective annual rate of return taking into account the effect of compounding interest. It represents the real rate of return earned on savings or investments.

APY is higher than the stated interest rate when interest compounds more frequently than annually. For example, a 5% interest rate compounded monthly yields an APY of approximately 5.12%. Banks are required to disclose APY on deposit accounts like savings accounts, reflecting compound interest. In the UK, a similar disclosure is AER, and U.S. APY disclosures are governed by Regulation DD.

Related Terms

APR

Annual Percentage Rate

APR is the annual rate charged for borrowing or earned through investment, expressed as a percentage...

AER

Annual Equivalent Rate

AER is the standardized annual interest rate that shows what a return or cost would be over one full...

Interest

Interest is the cost of borrowing money or the return earned on deposited funds, typically expressed...

Compound Interest

Compound interest is interest calculated on both the initial principal and the accumulated interest ...

Savings Account

A savings account is a deposit account that typically earns interest on the balance. It's designed f...

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