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You may notice if you’re shopping for a savings account that banks advertise both an interest rate and an annual percentage rate, or APY. While an account’s interest rate can give you a basic ...
This is a reasonable approximation if the compounding is daily. Also, a nominal interest rate and its corresponding APY are very nearly equal when they are small. For example (fixing some large N), a nominal interest rate of 100% would have an APY of approximately 171%, whereas 5% corresponds to 5.12%, and 1% corresponds to 1.005%.
Another way of defining APY is that it represents the real rate of return you can earn in one year if interest is compounded. And the more often interest is compounded, the higher the APY will be ...
A 5.00% APY means that your account will yield an interest rate of 5% after one year. For example, if you deposited $1,000 in an account with a 5.00% APY, you would earn $50 in interest.
The terms "APY" and "interest rate" are often used interchangeably when people discuss savings and investments, but there's a very important distinction between the two. While it's important to...
Key financial terms like APY and APR can be confusing to interpret, especially when factored into the true cost of borrowing money or the parameters of spending it. Whether you are looking for a...