JagInsights › Glossary › APY
What is APY?
APY is the yearly yield on savings after compounding. How it differs from APR, with a worked example on $5,000.
APY is the annual percentage yield: the yearly return on a savings product after compounding is included. It is the number you use to compare savings accounts.
Worked example
Five thousand dollars at 4.00 percent APY earns about $200 in a year if you leave it there. The same 4.00 percent quoted as a simple rate that compounds monthly is a slightly lower APY. Banks advertise APY so those two products can be compared.
Why it matters
APR and APY look alike. APR is the yearly cost of a loan. APY is the yearly yield on cash. Mixing them makes a savings account look like a credit card, or the other way around.
Questions people ask
Is a higher APY always better?
On cash you can reach this week, yes, after fees and after you confirm the account is insured. A promotional APY that drops in three months is not the same product as a regular one.
Does APY include fees?
Usually no. A monthly fee can erase the yield on a small balance. Subtract fees from the dollars earned, not from the advertised percent.
Is APY a guaranteed return?
It is the current yield on that deposit product. Banks can change the rate. It is not a stock return.
Educational information only. JagInsights is not a financial adviser, broker, or lender. See the Terms and Privacy Policy.