1. What is APY?

APY (Annual Percentage Yield) is the real rate of return earned on an investment, taking into account the effect of compounding interest. Marcus CDs use daily compounding to calculate APY.

2. How Does the Calculator Work?

The calculator uses the APY formula:

Where:

• \( r \) — Annual interest rate in decimal form (e.g., 0.039 for 3.9%)
• 365 — Number of compounding periods per year (daily compounding)

Explanation: The formula accounts for daily compounding, which means interest is calculated and added to the principal balance each day.

3. Importance of APY Calculation

Details: APY provides a standardized way to compare different investment options by showing the true annual yield when compounding is taken into account.

4. Using the Calculator

Tips: Enter the annual interest rate in decimal form (e.g., 0.039 for 3.9%). The calculator will show the corresponding APY that Marcus would display for their CDs.

5. Frequently Asked Questions (FAQ)

Q1: Why does Marcus use APY instead of simple interest rate?
A: APY reflects the true earning potential including compounding effects, allowing for fair comparison between different financial products.

Q2: How often does Marcus compound interest?
A: Marcus compounds interest daily, which is why we use 365 in the formula.

Q3: What's the difference between APR and APY?
A: APR doesn't account for compounding, while APY does. For CDs, APY is always equal to or higher than APR.

Q4: Can I use this for other banks' CDs?
A: Yes, as long as they also use daily compounding. Some banks may compound differently (monthly, quarterly).

Q5: Why is my APY slightly higher than the stated interest rate?
A: This is due to compounding - you earn interest on previously earned interest, increasing your effective yield.