Annual Percentage Yield (APY)
- From Investopedia (1-9-2020):
"The annual percentage yield (APY) is the real rate of return earned on a savings deposit or investment taking into account the effect of compounding interest.
Unlike simple interest, compounding interest is calculated periodically and the amount is immediately added to the balance. With each period going forward, the account balance gets a little bigger, so the interest paid on the balance gets bigger as well."
Basics
- Often used besides but should not be confused with APR
- From Investopedia (1-9-2020):
"The annual percentage yield (APY) is the real rate of return earned on a savings deposit or investment taking into account the effect of compounding interest.
Unlike simple interest, compounding interest is calculated periodically and the amount is immediately added to the balance. With each period going forward, the account balance gets a little bigger, so the interest paid on the balance gets bigger as well."
- From APRtoAPY (18-1-2022):
"It's a standard evaluation of return based on one year. You'll run into this most often when considering deposit accounts, and how much you'll earn on your deposit.
How do you convert APR to APY?
APY = [1 + (APR / Number of Periods)]^(Number of Periods) - 1
To calculate APY using APR:
- Take APR and divide it by the number of compounding periods.
- Add 1 to the result.
- Raise the result by the Number of Compounding Periods.
- Subtract 1 from the result.
The result is your Annual Percentage Yield expressed as a percentage."
