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 rates, APY gives you the true picture of how much 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 more frequently interest is compounded, the higher the APY will be compared to the stated annual interest rate.

3. Importance of APY Calculation

Details: APY helps you compare different savings accounts accurately. 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). The calculator will show the effective annual yield (APY).

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.

Q2: How does compounding frequency affect APY?
A: More frequent compounding (e.g., daily vs. monthly) results in a higher APY for the same interest rate.

Q3: What's a good APY for a savings account?
A: As of 2023, high-yield savings accounts typically offer APYs between 3-5%, much higher than traditional savings accounts.

Q4: Does APY account for fees?
A: No, APY only reflects the interest earnings. Account fees would reduce your actual returns.

Q5: How often do banks compound interest?
A: Most high-yield savings accounts compound interest daily and credit it monthly, but practices vary by institution.