What Is APY?

Answer:
APY is short for Annual Percentage Yield, and

it is an investment term. This is a tool for evaluating how much a deposit will earn for you. This tool is used as a standardized way of comparing various investment options. You should always try to get the highest APY.

The APY is the amount of money you will earn on a specific deposit over a year. APY is useful because it will also take compounding into account. In its most basic definition, compounding means making earnings on earnings. For example, if you deposit $100 and are earning 10% per quarter, the first quarter you will earn $10 and will now have $110. The next quarter you will earn $11 and will have $121. This will repeat until the money is pulled out. In other words, the APY will tell you how much money you are really making. Other ways of quoting a rate to you will not show you the whole picture.

You will usually see that the APY will be higher when the compounding periods are more frequent. Be sure to ask the bank how often the compound. If it is compounded daily instead of quarterly, you will earn a better APY.

You should always look at all your assets as one. Think of yourself as the CFO of You, Inc. In order to boost your personal APY, try to find ways to ensure that your money is compounding as often as possible. If you have two CDs which pay the same rate, choose the one that pays you interest most often. Then, you can reinvest your interest payments and start earning interest on that amount as well.

The easiest way to calculate the APY is by using the following formula:

APY = (1 + r/n)^n – 1, where r is the stated interest rate and n is the number of times that it will compound per year. People with a background in finance will also recognize this formula as the Effective Annual Rate (EAR) calculation.