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Following our earlier example, if your dividend rate at a credit union is 4.5% and interest is compounded monthly, your APY would be 4.59% for the same account.
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 ...
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...
APY is a popular metric that allows holders of deposit accounts to accurately understand the amount of interest income generated by their account.
Many banks offer tiered interest rates — the more you deposit, the higher your rate. For example, you might earn 3.50% APY on balances of under $10,000 and 4.00% APY on anything above that ...
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