APY: What is it, and how is it calculated?

Example: Let’s say you deposit $10,000 into a two-year CD with a 0.70% interest rate, and it's compounding daily. Your APY would be 0.702%. After two years, you'll have a total of $10,140.98.

The higher the APY on a bank account, the more money you'll be making year over year.

Given current interest rates, you can find some CD products offering a decent APY. According to the FDIC, the national average APY on a two-year CD is 1.43%. But some financial institutions are offering CDs with APYs above 5% right now.

Meanwhile, the national average APY for savings accounts sits at a measly 0.39%, according to the FDIC. Compare the best savings accounts rates at multiple banks and look at high-yield savings accounts to find the best rate.

APY vs. APR

The difference between APR and APY is that APR doesn’t take compound interest into account, but APY does.

APR is the annual rate of interest, without compound interest factored in. APY builds the compounding into the rate.

A savings vehicle or loan might have an APR of 5% but an APY of 5.09% if the interest is compounded quarterly, or an APY of 5.11% if the compounding is done monthly.

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