What is an Annual Percentage Yield?
The annual percentage yield (APY) is the actual percentage paid to you when you hold money in an investment for a fixed time. This can be different than the yearly interest rate, and is actually higher when the interest is compounded. Compounding means that you may add interest to your account on a quarterly, yearly, daily or monthly rate. What happens when compounding occurs is that the money or principal you initially deposit earns interest, then that combined amount earns interest, and so on. If your interest is compounded daily, your annual percentage yield reflects not just the standard rate, but the fact that each time your account balance increases through compounding, you are earning more money. By the end of year, if you have not withdrawn or added money to an investment, your annual percentage yield has increased past the standard rate. To understand this, it helps to think of the old question as to whether you’d like 100,000 US Dollars (USD) today or a penny invested in an i
The annual percentage yield (APY) is the actual percentage paid to you when you hold money in an investment for a fixed time. This can be different than the yearly interest rate, and is actually higher when the interest is compounded. Compounding means that you may add interest to your account on a quarterly, yearly, daily or monthly rate. What happens when compounding occurs is that the money or principal you initially deposit earns interest, then that combined amount earns interest, and so on. If your interest is compounded daily, your annual percentage yield reflects not just the standard rate, but the fact that each time your account balance increases through compounding, you are earning more money. By the end of year, if you have not withdrawn or added money to an investment, your annual percentage yield has increased past the standard rate.
