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 provides 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 (daily, monthly, quarterly, etc.), which affects your total earnings.

3. Importance of APY Calculation

Details: Comparing APYs helps you choose the best savings account. A higher APY means more earnings on your deposits. Even small differences can add up significantly 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. For daily compounding, enter 365; for monthly, enter 12; for quarterly, enter 4.

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 does compounding frequency affect APY?
A: More frequent compounding (daily vs. monthly) results in higher APY, as interest earns interest more often.

Q3: What are typical APY ranges for savings accounts?
A: As of 2023, high-yield savings accounts offer 3-5% APY, while traditional banks may offer 0.01-0.1%.

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

Q5: Is APY the same as annual return?
A: For savings accounts, yes. For investments with variable returns, APY represents a projected annualized return.