1. What is APY?

APY (Annual Percentage Yield) is the real rate of return earned on a savings account, taking into account the effect of compounding interest. Unlike simple interest rate, APY gives you a more accurate picture of your potential earnings.

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 how often interest is compounded, which affects your total earnings. More frequent compounding results in higher APY.

3. Importance of APY Calculation

Details: APY helps you compare different savings accounts effectively. A higher APY means more earnings on your deposits. 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 is compounded per year (e.g., 12 for monthly, 365 for daily). All values must be positive numbers.

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 you the true earning potential of a savings account.

Q2: How often do high-yield accounts typically compound?
A: Most compound daily, but some may compound monthly or quarterly. Daily compounding generally yields slightly higher returns.

Q3: Why does APY matter for savings?
A: It helps you understand how much your money will actually grow over time, making it easier to compare different savings options.

Q4: Can APY change over time?
A: Yes, banks can change their APY rates. Most high-yield savings accounts have variable rates that can go up or down.

Q5: Is there a maximum APY I can earn?
A: While there's no theoretical maximum, current competitive rates for high-yield savings accounts typically range between 3-5% APY.