APY
APY Meaning:
In deposit terminology, the term APY or Annual Percentage Yield refers to the effective interest rate on an investment over a one period taking into consideration the effect of compounded interest. Compounding interest usually brings the APY to a higher level than that of the standard interest rate without compounding.
In deposit terminology, the term APY or Annual Percentage Yield refers to the effective interest rate on an investment over a one period taking into consideration the effect of compounded interest. Compounding interest usually brings the APY to a higher level than that of the standard interest rate without compounding.
For example, the APY or Annual Percentage Yield is calculated using a simple formula:
APY = (1 + periodic rate) *Periods – 1
The APY calculation basically takes the principal amount, which has earned one day’s interest, and then adds the interest plus the principal amount to calculate the second day’s interest, which then earns interest on that amount, etc. This would be an example of compounding daily interest, and by continuing to accrue compounded interest, the net result would be that the interest rate received with the effect of the compounding interest would usually increase the APY significantly over time.