APY stands for "annual percentage yield," which is the interest you earn by putting your money into an account. It is the percentage rate of the total amount of interest earned on a deposit account or an investment, based on the interest rate and the compounding frequency for one year. APY is an important term to know for anyone focused on earning a return on their money.
Almost all savings accounts, and some checking accounts, have an APY. The higher it is, the faster your money grows. APY considers the effect of compounding interest, which means that the interest earned on your account balance is added to the principal, and the interest is then calculated on the new, higher balance.
It is important to note that APY is different from APR (annual percentage rate), which is the interest rate charged on loans and credit cards. APY is the actual rate of return you will earn on your checking or savings account.
When consumers hold a certificate of deposit (CD), the APY is highest because the consumer is being rewarded for sacrificing immediate access to their funds. The APY on a CD is the actual rate of return you will earn on your investment.
