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APY

The yearly return on savings when compounding is included.

What APY means

APY stands for Annual Percentage Yield. It shows how much a savings or investment account actually earns in a year once the effect of compound interest is included. Because interest is added to your balance on a schedule (daily, monthly, and so on), the APY is usually slightly higher than the simple "interest rate" a bank advertises. APY is the number to compare when shopping for a savings account.

Example

If you deposit $1,000 in a high-yield savings account earning 4.00% APY compounded monthly, after one year you'll have about $1,040.74 — slightly more than 4% because interest is earned on interest.

Related terms

InterestCompound InterestAPR

Disclaimer

Definitions are simplified for educational use and are not personalized financial, investment, tax or legal advice.

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Frequently asked questions

Use APY for savings and APR for borrowing. APY already includes the effect of compounding, so it shows what you actually earn in a year. APR is built for loans: it shows what borrowing costs, fees included. Comparing savings accounts by APR, or loans by APY, mixes up two different questions.

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