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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
Annual Percentage Yield — what you earn on savings over a year, including the effect of compounding. It is the savings-side counterpart to APR.
Why It Matters
APY is the honest number for comparing savings accounts because it already accounts for compounding, while a quoted "interest rate" may not. The distinction also runs the other way: a credit card APR of 22% quoted without compounding works out to roughly 24.4% once interest compounds monthly — which is part of why card balances grow faster than the headline number suggests.
Key Points
- What you earn on savings in a year, including compounding.
- Use APY, not the raw interest rate, to compare savings accounts fairly.
- Savings APYs are variable — they move as the Fed moves policy rates.
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Related Terms
Common Questions
Annual Percentage Yield — what you earn on savings over a year, including the effect of compounding. It is the savings-side counterpart to APR. APY is the honest number for comparing savings accounts because it already accounts for compounding, while a quoted "interest rate" may not. The distinction also runs the other way: a credit card APR of 22% quoted without compounding works out to roughly 24.
APY is the honest number for comparing savings accounts because it already accounts for compounding, while a quoted "interest rate" may not. The distinction also runs the other way: a credit card APR of 22% quoted without compounding works out to roughly 24.4% once interest compounds monthly — which is part of why card balances grow faster than the headline number suggests.
What you earn on savings in a year, including compounding.
Use APY, not the raw interest rate, to compare savings accounts fairly.
Savings APYs are variable — they move as the Fed moves policy rates.