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## What is APY?

The APY, or annual percentage yield, is the amount of interest you can expect to accrue one year after depositing money into the account.

Not to be confused with annual percentage rate (APR), the APY takes your interest rate and compound interest into account.

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## How does APY work?

The calculation of APY includes the interest you earn on your interest.

Example: Letâ€™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 doesnâ€™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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Rudro is an Editor with Moneywise. His work has appeared on Yahoo Finance, MSN Money and The Financial Post. He previously served as Managing Editor of Oola, and as the Content Lead of Tickld before that. Rudro holds a Bachelor of Science in Psychology from the University of Toronto.

### 10 best banks of 2023

The best banks offer competitive yields on deposits, low fees, excellent customer service and more.

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#### Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.