1. What is APY?

APY (Annual Percentage Yield) is the real rate of return earned on an investment, taking into account the effect of compounding interest. Unlike simple interest, APY includes compound interest that accrues on both the principal and the accumulated interest.

2. How Does the Calculator Work?

The calculator uses the APY formula:

Where:

• \( r \) — Annual interest rate (in decimal form)
• 365 — Number of compounding periods per year (daily compounding)

Explanation: The formula calculates the total amount of interest earned in a year when interest is compounded daily.

3. Importance of APY Calculation

Details: APY gives you a more accurate picture of your potential earnings than the simple interest rate. It's particularly important when comparing different savings or investment options.

4. Using the Calculator

Tips: Enter the annual interest rate (as a percentage) that your bank or financial institution offers. The calculator will show you the effective annual yield when interest is compounded daily.

5. Frequently Asked Questions (FAQ)

Q1: Why does Axos use APY?
A: Axos and other financial institutions use APY to give customers a true picture of their potential earnings, accounting for the power of compound interest.

Q2: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY does. APY will always be equal to or higher than APR for the same rate.

Q3: How often does Axos compound interest?
A: Axos typically compounds interest daily, which is why we use 365 compounding periods in our calculation.

Q4: Does a higher APY always mean better returns?
A: Generally yes, but also consider factors like account fees, minimum balance requirements, and accessibility of funds.

Q5: Can I use this calculator for other banks?
A: Yes, this calculator works for any financial institution that compounds interest daily. Just input their advertised interest rate.