APY.
In plain English
APY (Annual Percentage Yield) is the effective annual rate of return on a savings account, CD, or other deposit product, after accounting for how often interest compounds. APY is required by federal Truth in Savings law to be displayed on bank advertising so consumers can compare offers apples-to-apples without doing the compounding math themselves. For most short-term savings products, the APY is the only number that matters when shopping.
01Why it matters
When picking a high-yield savings account or CD, APY is the comparison number. A 4.50% APY account beats a 4.25% APY one with the same risk profile (FDIC-insured deposits up to $250,000), full stop. Loyalty to a low-yield account at a brick-and-mortar bank is one of the more common avoidable wealth leaks.
02The math, step by step
$10,000 in a savings account at 5.00% APY earns about $500 in the first year. The same $10,000 in a Big Four bank checking account at 0.01% APY earns $1. The difference is $499 a year for filling out one online application.
03What this is NOT
APY is what you earn (savings, CDs). APR is what you pay (loans, credit cards). APY includes the effect of compounding; APR usually does not.
04Receipts
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