What does APY mean?

APY is the annual percent yield that reflects compounding on interest. It reflects the actual interest rate you earn on an investment because it considers the interest you make on your interest. Consider the example above where the $100 investment yields 5% compounded quarterly.

Are APY & APR the same?

So, according to APY, the bank is charging you 12.68 % interest yearly. So, as we hope you can see, the annual percentage rate (APY) and the APR (or effective annual rate) are the same if there are no additional cost on the loan and you need to pay the interest once a year.

Why is APY used instead of a simple interest rate?

APY, or Annual Percentage Yield, is used instead of the simple interest rate because it provides a more accurate measure of the actual rate of return on an investment or savings account. The APY takes into account the effect of compounding, which is the process of earning interest on the interest that has already been earned.

What is a 5% APY?

A 5% APY means your money earns 5% interest per year. If you deposited $100 in an account that compounds annually, you’d have $105 at the end of a year. But accounts may compound monthly, weekly, daily or even continuously. The more frequent the compounding periods, the more interest you earn. What is a good APY?