Annual Percentage Yield (APY) (APY)
Banking
A percentage rate reflecting the total amount of interest paid on a deposit account based on the interest rate and the frequency of compounding for a 365-day year.
- — Dictionary of Banking Terms and Phrases
- — Dictionary of Banking Terms and Phrases retrieved 2014-05-16
Personal Finance
A percentage rate reflecting the total amount of interest paid on a share account based on the interest rate and the frequency of compounding for a year.
- — Pocket Cents Glossary retrieved 2014-05-16
Annual percentage yield is the amount you earn on an interest-bearing investment in a year, expressed as a percentage. For example, if you earn $60 on a $1,000 certificate of deposit (CD) between January 1 and December 31, your APY is 6%.
When the APY is the same as the interest rate that is being paid on an investment, you are earning simple interest. But when the APY is higher than the interest rate, the interest is being compounded, which means you are earning interest on your accumulating interest.