Glossary
APY (annual percentage yield)
APY (annual percentage yield) is the percentage a deposit earns in a year, counting compounding: the figure banks must quote for savings accounts, money market accounts and CDs.
Regulation DD requires banks and credit unions to state APY, so accounts that compound differently can be compared directly. The same interest rate gives a higher APY the more often it compounds.
APY = (1 + r/n)^n − 1, where r is the yearly rate and n the number of times it compounds a year. Savings APYs are variable; a CD's is fixed for its term.
Example
A 4.50% rate, compounded three ways
- Daily
- 365 times a year
- 4.602% APY
- Monthly
- 12 times a year
- 4.594% APY
- Yearly
- Once a year
- 4.500% APY
Where you’ll see it on RateHerald
- Best savings APY on $10,0005.00%Apple Coverdell ESA: $500 a year after fees, first of 270 accounts we rank.
- Best money market APY on $10,0004.05%CFG High Yield Money Market: $405 a year after fees, first of 174 accounts we rank.
- Best CD rate today5.25%5-year: Toyota Financial Certificate of Deposit, first of 89 CDs at that term.
Related terms
- APR (annual percentage rate)The yearly cost of borrowing as a percentage: on a credit card, the interest rate on balances you carry; on a loan, the interest rate plus certain fees.
- Compound interestInterest earned on both the original amount and the interest already added to it, so savings (and debts) grow faster over time than with simple interest.
- High-yield savings accountAn insured savings account that pays well above the national average APY, usually at online banks, while keeping your money available to withdraw.
- CD (certificate of deposit)A bank deposit that earns a fixed APY for a set term, from a few months to five years or more, in exchange for a penalty if you withdraw early.
Sources: CFPB: Regulation DD, Appendix A (annual percentage yield)