# Annual percentage yield

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## Annual percentage yield (APY)

The effective, or true annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate, raising it to the number of periods in a year and then subtracting one. For example, a 1% per month rate has an APY of 12.68% (1.01^12 -1).

## Annual Percentage Yield

The yield on an investment in one year, taking into account the effects of compounding. For example, if one has a fixed-income investment such as certificate of deposit that pays 3% in interest each month, the annual percentage yield is more than 3% because compounding the interest results in a (slightly) higher return each month. In this example, the annual effective yield is calculated thus:

Annual percentage yield = (1.03)^12 - 1 = .43 = 43%, where 1.03 is 1 plus the monthly interest and 12 is the number of times in a year interest is compounded. It is also known as the annual effective yield.

## Annual percentage yield (APY).

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.

References in periodicals archive ?
BankPurely, DollarSavingsDirect and ableBanking were all offering annual percentage yields of 1.
Internet savings accounts that aren't attached to a credit or debit card are seeing annual percentage yields as high as 3.
Money Market Disclosures: Interest rates and Annual Percentage Yields (APY) accurate as of 10/9/2012 and are subject to change without notice.
While annual percentage yields (APYs) change over time, the current APY for the Savings Portfolio offers a competitive rate at 1.
Annual percentage yields (APY) are accurate as of September 29, 2008.
Schwab Bank's intention since launching this product was for it to be the industry's best checking account with one of the industry's highest annual percentage yields," said Rene Kim, senior vice president for Charles Schwab.
com[R] Top Tier award for consistently offering annual percentage yields (APYs) that were among the highest reported.
com(R) Top Tier award for consistently offering annual percentage yields (APYs) that were among the highest reported.
To help current and prospective customers, Colonial is offering special annual percentage yields (APY) on 3- and 5-month certificates of deposit (CDs).
a) Tiered annual percentage yields (APY) are currently at 1.
com's Top Tier award for consistently offering annual percentage yields (APYs) that were among the highest recorded in the 100 Highest Yields for the third consecutive quarter this year.
The annual percentage yield (APY) on this account is set higher than the Bank's normal CD APY and is competitive at the national level.

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