{"id":22330,"date":"2025-11-25T09:01:02","date_gmt":"2025-11-25T09:01:02","guid":{"rendered":"https:\/\/budgetadirect.com\/?p=22330"},"modified":"2025-11-25T09:01:03","modified_gmt":"2025-11-25T09:01:03","slug":"what-is-annual-percentage-yield-apy","status":"publish","type":"post","link":"https:\/\/budgetadirect.com\/?p=22330","title":{"rendered":"What is Annual Percentage Yield (APY)?"},"content":{"rendered":"<div id=\"\">\n<div class=\"overflow-hidden relative bg-blue-50 aspect-video w-full rounded-lg\"><\/div>\n<p>\n            Image by GettyImages, Illustrated by Bankrate\n        <\/p>\n<\/p><\/div>\n<div xmlns:default=\"http:\/\/www.w3.org\/2000\/svg\">\n<div id=\"block_5a38154ee342dba8ca58c2b7eddf165b\" class=\"key-takeaways sm:border-l-4 border-(--accent) sm:pl-8 my-8 relative\" style=\"--accent: var(--color-blue-medium)\">\n    <!-- htmlmin:ignore --><\/p>\n<h2 class=\"heading-4 mt-0 mb-4 text-crop-none max-sm:flex max-sm:items-center max-sm:gap-4\" data-position=\"1\" data-beam-element-viewed=\"\" data-id=\"br-h2-1-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"Key Takeaways\" data-outcome=\"\">\n    <span class=\"shrink-0\">Key Takeaways<\/span><br \/>\n        <span class=\"max-sm:h-0.5 max-sm:w-full max-sm:w-full max-sm:bg-(--accent) max-sm:rounded-full max-sm:block\"\/><br \/>\n    <\/h2>\n<p>    <!-- htmlmin:ignore --><\/p>\n<ul class=\"flex flex-col text-gray-700 mb-0 gap-2 list-disc\">\n<li class=\"pl-4 relative marker:text-(--accent)\">\n                                                            APY (Annual Percentage Yield) shows how much interest your savings account or CD will earn in one year, including the effect of compound interest.\n                                                <\/li>\n<li class=\"pl-4 relative marker:text-(--accent)\">\n                                                            The best savings accounts currently pay around 4.20% APY, while average savings accounts pay just 0.61% APY\u2014that\u2019s over six times more earnings.&#13;<\/p>\n<\/li>\n<li class=\"pl-4 relative marker:text-(--accent)\">\n                                                            APY accounts for compounding frequency, which means you earn interest on your interest. The more frequently interest compounds, the more you earn.&#13;<\/p>\n<\/li>\n<li class=\"pl-4 relative marker:text-(--accent)\">\n                                                            Always compare APYs, not just interest rates, when choosing where to save\u2014it\u2019s the true measure of what you\u2019ll earn.\n                                                <\/li>\n<\/ul>\n<\/div>\n<p>APY \u2014 short for annual percentage yield \u2014 tells you exactly how much interest your savings will earn in a year. Unlike a simple interest rate, APY factors in compound interest, which is when you earn interest not just on your initial deposit but also on the interest you\u2019ve already accumulated.<\/p>\n<p>This matters because two accounts with the same interest rate can pay you different amounts depending on how often they compound. An account that compounds daily will earn you more than one that compounds monthly, even with identical interest rates. Here\u2019s what you need to know to maximize your savings.<\/p>\n<h2 data-position=\"2\" data-beam-element-viewed=\"\" data-id=\"br-h2-2-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"What does APY mean?\" data-outcome=\"\">What does APY mean?<\/h2>\n<p>APY is the total amount of interest you\u2019ll earn in one year, expressed as a percentage. It\u2019s the most important number to look at when comparing savings accounts or certificates of deposit (CDs). <\/p>\n<p>The magic of APY lies in compound interest. When your account compounds interest, you start earning returns on your returns. If you have $10,000 earning 5% APY with monthly compounding, you don\u2019t just earn $500\u2014  you earn $512 because each month\u2019s interest gets added to your balance and starts earning interest too.<\/p>\n<p>Banks are required by federal law to disclose APY, making it easy to compare accounts apples-to-apples.<\/p>\n<p><strong>Ready to maximize your savings?<\/strong> Compare today\u2019s best savings rates to see which accounts pay the most.<\/p>\n<h3>What\u2019s a typical APY?<\/h3>\n<p>APY varies dramatically based on where you save. <\/p>\n<p>That difference between 0.61% and 4.20% is massive. On a $10,000 balance, you\u2019d earn $61 per year at the national average versus $420 at a top rate \u2014 that\u2019s over $350 left on the table.<\/p>\n<p>The lesson? Shop around. Don\u2019t settle for your brick-and-mortar bank\u2019s rate when online banks pay six times more.<\/p>\n<h2 id=\"apy-formula\" data-position=\"3\" data-beam-element-viewed=\"\" data-id=\"br-h2-3-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"How APY and compounding work together\" data-outcome=\"\">How APY and compounding work together<\/h2>\n<p>Here\u2019s why APY matters more than interest rate: compounding frequency changes your actual earnings. Look at three accounts with identical 4% interest rates but different compounding:<\/p>\n<div class=\"w-full overflow-x-auto\">\n<table class=\"wp-block-table Table Table--stripedOdd Table--spacing1 align-middle has-fixed-layout wrapped\">\n<thead>\n<tr>\n<th>Deposit<\/th>\n<th><strong>Interest rate<\/strong><\/th>\n<th><strong>Compounding frequency<\/strong><\/th>\n<th><strong>Total earnings after one year<\/strong><\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>$10,000<\/td>\n<td>4%<\/td>\n<td>Annually<\/td>\n<td>$400<\/td>\n<\/tr>\n<tr>\n<td>$10,000<\/td>\n<td>4%<\/td>\n<td>Monthly\u00a0<\/td>\n<td>$407.42<\/td>\n<\/tr>\n<tr>\n<td>$10,000<\/td>\n<td>4%<\/td>\n<td>Daily<\/td>\n<td>$408.08<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>Daily compounding earns you an extra $8 per year on this balance. Over five years, that gap widens to nearly $50. This is why you should always compare APY, not interest rates. APY already includes compounding, so you\u2019re seeing the true earning power.<\/p>\n<p><strong>Want to see how much you could earn?<\/strong> Use Bankrate\u2019s savings calculator to run your numbers.<\/p>\n<h2 id=\"apy-vs-apr-the-difference-between-the-two\" data-position=\"4\" data-beam-element-viewed=\"\" data-id=\"br-h2-4-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"APY vs. APR: Know the difference\" data-outcome=\"\">APY vs. APR: Know the difference<\/h2>\n<p>APY shows what you earn on savings. APR (annual percentage rate) shows what you pay on loans. When you\u2019re saving money, you want the highest APY possible. When you\u2019re borrowing money \u2014 for a mortgage, personal loan, or credit card \u2014 you want the lowest APR possible. Learn more about APY vs. APR.<\/p>\n<p>For loans, APR includes both the interest rate and fees, giving you the total cost of borrowing. That\u2019s why a mortgage might advertise a 6.5% interest rate but have a 6.75% APR once you factor in closing costs and fees.<\/p>\n<h2 data-position=\"5\" data-beam-element-viewed=\"\" data-id=\"br-h2-5-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"Is APY variable or fixed?\" data-outcome=\"\">Is APY variable or fixed?<\/h2>\n<p>It depends on the account. <\/p>\n<p>You\u2019ll find <strong>fixed APYs <\/strong>on accounts like CDs, which lock in your rate for the entire term (6 months, 1 year, 5 years, etc.). Your rate won\u2019t change even if market rates drop.<\/p>\n<p>You\u2019ll find <strong>variable APYs <\/strong>on savings accounts and checking accounts, which means they have rates that fluctuate. Banks will adjust rates based on Federal Reserve policy and competition.<\/p>\n<p>The Federal Reserve\u2019s benchmark rate directly impacts APYs. When the Fed raises rates, banks typically increase savings APYs to attract deposits. When the Fed cuts rates, savings APYs usually fall too.<\/p>\n<p>This is why it\u2019s smart to lock in high CD rates when they\u2019re available \u2014 you\u2019re protecting yourself from future rate cuts.<\/p>\n<h2 data-position=\"6\" data-beam-element-viewed=\"\" data-id=\"br-h2-6-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"How to find an account\u2019s APY\" data-outcome=\"\">How to find an account\u2019s APY<\/h2>\n<p>By law, banks must display APY prominently. You\u2019ll find it:<\/p>\n<ul class=\"wp-block-list\">\n<li>On bank websites and account comparison pages<\/li>\n<li>In account disclosures and fine print<\/li>\n<li>On monthly statements<\/li>\n<\/ul>\n<p>Don\u2019t just look at interest rate \u2014 that doesn\u2019t tell the full story. The APY is what actually matters for your bottom line. If you\u2019re comparing accounts, Bankrate\u2019s rate tables make it easy to see which banks pay the most, updated daily.<\/p>\n<h2 data-position=\"7\" data-beam-element-viewed=\"\" data-id=\"br-h2-7-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"Bottom line\" data-outcome=\"\">Bottom line<\/h2>\n<p>APY is the single most important number when choosing where to save. It tells you exactly what you\u2019ll earn, accounting for both the interest rate and how often that interest compounds.<\/p>\n<p>With top savings accounts paying over six times the national average, shopping around isn\u2019t optional \u2014 it\u2019s leaving money on the table. The difference between a 0.61% APY and 4.20% APY is hundreds or thousands of dollars in your pocket each year.<\/p>\n<p><strong>Next steps:<\/strong><\/p>\n<div class=\"HelpfulCTA mx-auto flex flex-col items-center gap-6 my-6 py-12 text-base border-y border-gray-200\" data-helpful-cta=\"\" data-beam-element-viewed=\"\" id=\"did-you-find-this-helpful\" data-type=\"cta\" data-location=\"article-bottom\" data-position=\"banner\" data-text=\"Did you find this page helpful?\">\n<div class=\"HelpfulCTA-initial w-full flex flex-col items-center gap-4\" data-cta-initial=\"\">\n<div class=\"HelpfulCTA-question text-lg font-bold text-center text-gray-900\">\n            Did you find this page helpful?<\/p>\n<div id=\"ASIomMA6Dg\" class=\"hidden\">\n<div class=\"wysiwyg wysiwyg--sm wysiwyg--flush max-w-xs\">\n<p class=\"mb-6 text-base\">\n                            <strong class=\"block font-bold text-gray-900\">Why we ask for feedback<\/strong><br \/>\n                            Your feedback helps us improve our content and services. 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href=\"https:\/\/www.bankrate.com\/banking\/savings\/what-is-apy\/\" target=\"_blank\" rel=\"noopener\" rel=\"nofollow\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Image by GettyImages, Illustrated by Bankrate Key Takeaways APY (Annual Percentage Yield) shows how much interest your savings account or CD will earn in one year, including the effect of compound interest. The best savings accounts currently pay around 4.20% APY, while average savings accounts pay just 0.61% APY\u2014that\u2019s over six times more earnings.&#13; APY<\/p>\n","protected":false},"author":1,"featured_media":22331,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[58],"tags":[],"class_list":{"0":"post-22330","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-homes"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.2 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is Annual Percentage Yield (APY)? | BudgetADirect<\/title>\n<meta name=\"description\" content=\"Image by GettyImages, Illustrated by Bankrate Key Takeaways APY (Annual Percentage Yield) shows how much interest your savings account or CD will earn in\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/budgetadirect.com\/?p=22330\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is Annual Percentage Yield (APY)? 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