Retirement & Savings

What Is APY?

APY (annual percentage yield) is the actual yearly rate of return on a deposit once compounding is included. Because interest earned during the year also earns interest, APY is higher than the stated interest rate whenever interest compounds more than once a year. It is the standard way banks advertise savings rates.

APY Formula

APY = (1 + r/n)^n − 1, where r is the stated annual rate and n is the number of compounding periods per year.

Example

A 5% rate compounded monthly gives an APY of about 5.12%.

APY vs. APR

APY includes compounding and is typically used for savings; APR does not include compounding and is typically used for loans.

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🔗 Related Terms

Compound Interest APR (Annual Percentage Rate) Interest Rate

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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.