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 more frequently interest is compounded, the higher the APY will be compared to the nominal rate.

3. Importance of APY Calculation

Details: APY allows you to compare different savings accounts accurately, as it accounts for varying compounding frequencies. A higher APY means more earnings on your deposits.

4. Using the Calculator

Tips: Enter the annual interest rate (as a percentage) and the number of times interest compounds per year (e.g., 12 for monthly, 365 for daily).

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 often do high-yield savings accounts compound?
A: Most compound daily, but check with your bank as policies vary.

Q3: Why does compounding frequency matter?
A: More frequent compounding means interest earns interest more often, leading to higher overall returns.

Q4: Is APY the same as annual return?
A: Yes, APY represents your actual annual return including compounding effects.

Q5: Can APY change over time?
A: Yes, banks may adjust APY based on market conditions and Federal Reserve rate changes.