1. What is APY?

APY (Annual Percentage Yield) is the real rate of return earned on a savings account when compounding interest is taken into account. Unlike simple interest, APY accounts for the effect of compounding where interest is earned on previously accumulated interest.

2. How Does the Calculator Work?

The calculator uses the APY formula:

Where:

• \( r \) — Annual interest rate in decimal form (e.g., 0.0425 for 4.25%)
• 365 — Number of compounding periods per year (daily compounding)

Explanation: The formula calculates the effective annual rate when interest is compounded daily, which is how American Express personal savings accounts accrue interest.

3. Importance of APY Calculation

Details: APY allows you to compare savings accounts accurately by showing the true yield after compounding. A higher APY means more earnings on your deposits.

4. Using the Calculator

Tips: Enter the advertised annual interest rate (like 4.25%). The calculator will show the actual APY which may be slightly higher due to compounding.

5. Frequently Asked Questions (FAQ)

Q1: Why is APY different from the interest rate?
A: APY includes the effect of compounding, while the interest rate doesn't. With daily compounding, APY will always be equal to or higher than the stated rate.

Q2: How often does Amex compound interest?
A: American Express personal savings accounts compound interest daily and credit it to your account monthly.

Q3: Is this calculator specific to Amex savings?
A: While designed for Amex's daily compounding, it works for any account with daily compounding. Other frequencies would require formula adjustment.

Q4: What's a good APY for a savings account?
A: As of 2023-2024, high-yield savings accounts typically offer APYs between 3.50% to 5.00%, significantly higher than traditional banks.

Q5: Are there any fees that affect APY?
A: This calculator shows gross APY. Some accounts may have monthly fees that would reduce your actual yield.