What Is APY?

APY definition

APY expresses how much an account may earn over one year when compounding is included. It helps compare deposit products even when institutions compound interest on different schedules.

APY vs interest rate

A simple interest rate may describe the stated rate before compounding. APY includes the effect of compounding, so APY and a stated interest rate are not always the same number.

Why APY matters for CDs

CDs often advertise APY because the term and compounding rules are part of the return. Using APY lets a CD calculator estimate growth without asking users to choose daily, monthly or quarterly compounding.

How this calculator uses APY

Cd Calculator applies the APY directly to the term length. A 12-month estimate uses one year of APY. A shorter term uses the fractional part of a year, which is why a 6-month estimate at 4.00% APY is not the same as a full year of interest.

Common APY mistakes

When comparing offers, avoid treating APY as the only decision factor. Also review minimum deposit rules, renewal terms, penalties, fees and liquidity needs.

• Do not compare a 6-month CD with a 24-month CD as if the lockup period were identical.
• Do not assume a savings APY will stay fixed for the same period as a CD.
• Do not ignore tax treatment when estimating after-tax interest.

Estimate limits

APY-based estimates can still differ from actual account results because of institution-specific dates, rounding, fees, penalties and tax reporting rules.

Related calculator

Use the CD Calculator to turn these concepts into an estimate. Use APY to estimate maturity balance and interest earned for a certificate of deposit.