# Annual percentage yield

(redirected from Effective Yields)

## 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 ?
Effective yields on Hercules' debt investment portfolio were 13.5% during Q3 2018, the same level as Q2 2018.
These days, junk bonds yield around 6.25%, meaning that investors -- still desperate for yield -- have overpaid for these bonds sufficiently to drive down their effective yields to levels that fail to compensate them for the risks they are taking.
'...while CBN hiked MPR to 14per cent, which implied that it would lend money to banks at 16 per cent given the 200bps spread charged on its standing lending facility to banks, it went about issuing OMO bills at effective yields of between 18 per cent to 22per cent .
However, that may lead to double taxation and lower effective yields.
However, we think in 2013, the relatively small number of additional destinations - mostly long-haul, where prices generally allow better margins - can help keep effective yields flat and support profitability.
The company plans to offer effective yields of 13 percent for the two-year paper, 13.25 percent for three-year and five-year notes, and 13.43 percent for the five-and-a-half year bonds.
The effective yields at Monday's auction ranged from 11.5 to 11.69 percent.
It said that fiscal consolidation, reasonably good GDP growth and low real effective yields on government debt (reflecting the availability of non-market financing) have contributed to favorable debt dynamics in the years since.
Fiscal consolidation, reasonably good GDP growth and low real effective yields on government debt (reflecting the availability of nonmarket financing) have contributed to favourable debt dynamics in the years since.
Effective yields. First, although obvious to most, make sure the investment professionals in the company are passing along annual effective yields, and not nominal yields, to the credited rate setters.
aims to raise the effective yields promised to holders of its group annuity insurance policies by 0.25 percentage point before the end of the current fiscal year next March 31, officials with Japan's largest life insurer said Monday.

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