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 ?
Annual percentage yields were rounded to the nearest thousandth percentile, and actual returns may be slightly lower or higher than shown.
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.
com(R) Top Tier award for consistently offering annual percentage yields (APYs) that were among the highest reported in the financial web site's 100 Highest Yields(R) for 3rd quarter 2006.
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) for offering deposit products having relatively high annual percentage yields (APYs) compared to other institutions during the same quarter.
com[R] Top Tier award for consistently offering annual percentage yields (APY's) that were among the highest reported.
com gave BankDirect its Top Tier Award for consistently offering annual percentage yields that were among the highest reported for the second quarter of 2000.
com) money market accounting listings with one of the highest annual percentage yields.
4 /PRNewswire/ -- PNC Bank announced today that it will continue to host online certificate of deposit auctions throughout November, December and January, giving consumers an opportunity to get a CD with one of the most competitive annual percentage yields in the country.
To help current and prospective customers, Colonial is offering special annual percentage yields (APY) on 3- and 5-month certificates of deposit (CDs).