what is apy

APY stands for Annual Percentage Yield, which is a normalized representation of an interest rate based on a compounding period of one year. APY is the actual rate of return earned on an investment, taking into account the effect of compounding interest. It reflects the interest rate you earn on an investment because it considers the interest you make on your interest. APY is used to compare different offerings with varying compounding schedules. It is generally used to refer to the rate paid to a depositor by a financial institution, while the analogous annual percentage rate (APR) refers to the rate paid to a financial institution by a borrower. APY is a key feature to consider when shopping for a place to stash your savings, and it includes the effect of compounding interest, which is when both your principal and the accumulated interest earn interest.