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 considers the effect of compounding where interest is earned on previously accumulated interest.

2. How Does the Calculator Work?

The calculator uses the standard APY formula:

Where:

• \( r \) — Annual interest rate in decimal form (e.g., 0.036 for 3.6%)
• 365 — Number of compounding periods per year (daily compounding)

Explanation: The formula calculates the effective annual yield when interest is compounded daily, which is common for high-yield savings accounts like American Express Personal Savings.

3. Importance of APY Calculation

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

4. Using the Calculator

Tips: Enter the annual interest rate in decimal form (e.g., 0.036 for 3.6%). The calculator will show the corresponding APY for daily compounding.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY does. APY gives a more accurate picture of earnings.

Q2: Why does Amex use 3.60% APY?
A: As of 2023, American Express Personal Savings offers a competitive 3.60% APY (subject to change), which compounds daily.

Q3: How often is interest compounded?
A: Most high-yield savings accounts, including Amex, compound interest daily and credit it monthly.

Q4: Is APY the same as annual return?
A: Yes, APY represents the actual annual return you'll earn on your savings including compounding effects.

Q5: Does this calculator work for other banks?
A: Yes, it works for any savings account with daily compounding. Just input the bank's stated annual interest rate.