APY Calculator

APY stands for Annual Percentage Yield. It’s a measure of the effective interest rate you earn on an investment or savings account, taking into account the power of compounding interest. Unlike the stated interest rate, which shows how much interest you earn in a single year without compounding, APY provides a more realistic picture of your actual earnings.

Here’s how it works:

• Compounding interest: Instead of earning interest only on your initial deposit, you also earn interest on the earned interest from previous periods. This creates a “snowball effect,” where your earnings grow at an accelerating rate over time.
• APY factors in compounding: It considers the interest rate and the frequency of compounding (e.g., daily, monthly, quarterly) to give you a single, standardized figure representing your total annual return.

Why is APY important?

• Comparing accounts: When comparing savings accounts, CDs, or other investment options, APY is a more accurate measure than the stated interest rate, as it shows the real growth of your money.
• Making informed decisions: Understanding the impact of compounding and how APY affects your earnings can help you make informed decisions about where to invest or save your money.
• Tracking progress: You can use an APY calculator to track the growth of your investment over time and see how close you are to your financial goals.