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What is Annual Percentage Yield (APY)?

APY is an annualization of an interest rate which may be assessed on a different schedule, such as on a monthly basis, and is useful for comparing debt and loan agreements that use different schedules.

Annual Percentage Yield is a way to compare products and loans with different interest rates and different schedules for calculating the interest. It is a calculation of the effective annual rate, and it takes into account the effects of compounding interest, which a similar calculation for APR (Annual Percentage Rate) does not do.

Because it takes compounding into account, the APY is going to be higher than the APR, and this may be important for consumers to understand, since banks may quote the lower APR, but the consumer may pay the higher APY in effect. APY and APR can also be helpful when comparing savings accounts, checking accounts, and so forth.

Keywords: savings, interest rates, debt, loan interest, agreement, yield, checking account,