1. What is APY?

APY (Annual Percentage Yield) is the real rate of return earned on a savings deposit or investment, taking into account the effect of compounding interest. Unlike simple interest, APY considers that interest is earned on previously accumulated interest.

2. How Does the Calculator Work?

The calculator uses the APY formula:

Where:

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

Explanation: The more frequently interest is compounded within a year, the higher the APY will be compared to the nominal interest rate.

3. Importance of APY Calculation

Details: APY allows consumers to compare different savings accounts or investment products on an equal basis, as it standardizes the rate of return to an annual period including compounding effects.

4. Using the Calculator

Tips: Enter the annual interest rate in decimal form (e.g., 0.05 for 5%) and the number of compounding periods per year (e.g., 12 for monthly compounding). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY does. APY gives a more accurate picture of actual earnings.

Q2: How does compounding frequency affect APY?
A: More frequent compounding (daily vs. monthly vs. annually) results in higher APY for the same nominal rate.

Q3: What are typical APY ranges for savings accounts?
A: As of 2023, high-yield savings accounts typically offer 3-5% APY, while regular savings accounts may offer 0.1-0.5% APY.

Q4: Can APY be negative?
A: While unusual for savings accounts, APY can be negative if the interest rate is negative (you pay to keep money in the account).

Q5: How can I maximize my APY?
A: Look for accounts with higher interest rates and more frequent compounding. Online banks often offer better rates than traditional banks.