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 rates, APY reflects the actual amount you'll earn over a year.

2. How Does the Calculator Work?

The calculator uses the APY formula:

Where:

• \( r \) — Annual interest rate (in decimal form)
• \( n \) — Number of compounding periods per year

Explanation: The formula accounts for the effect of compounding, showing how frequently interest is added to your balance affects your overall return.

3. Importance of APY Calculation

Details: APY allows you to compare different savings accounts accurately. Higher APY means better returns. Even small differences in APY can significantly impact your savings over time.

4. Using the Calculator

Tips: Enter the annual interest rate (as a percentage) and the number of times interest compounds per year (typically 12 for monthly compounding). The calculator will show the effective annual yield.

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 your potential earnings.

Q2: How often do high-yield savings accounts compound?
A: Most compound interest daily and pay monthly, but always check with your bank for specific terms.

Q3: Why does APY matter for savings accounts?
A: It helps you understand your true earnings potential and compare different savings products effectively.

Q4: Can APY change over time?
A: Yes, most high-yield savings accounts have variable rates that can change based on market conditions.

Q5: Is there a maximum APY I can earn?
A: While there's no theoretical maximum, current top high-yield savings accounts offer APYs around 4-5% (as of 2023).