Personal Finance
Annual Percentage Yield (APY)
The real rate of return earned on an investment, accounting for compound interest.
Definition
Annual Percentage Yield (APY) is the effective annual rate of return taking into account the effect of compounding interest. APY differs from APR in that it reflects the actual amount of interest earned or paid when compounding is factored in. For example, a savings account with a 5% APR compounded monthly actually yields approximately 5.12% APY. The higher the compounding frequency, the greater the difference between APR and APY. When comparing savings accounts or CDs, APY is the better metric because it shows your true earnings.