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APY (annual percentage yield)

APY, or annual percentage yield, is the percentage a deposit account would earn in a year, based on its interest rate and how often interest compounds. Because federal rules set a standard formula, it allows like-for-like comparisons between accounts.

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How it works

Deposit accounts quote both an interest rate and an APY. The interest rate is the base rate used to calculate interest. The APY adds the effect of compounding: once interest is added to the balance, later interest is calculated on the larger amount, so the APY is higher than the rate whenever interest compounds more than once a year. For a one-year term, the APY equals the interest earned divided by the deposit.

The APY assumes the money and its interest stay in the account for a full year at today’s rate. On a variable-rate account, the rate and APY can change after you open it, and the account disclosures are required to say so. Accounts with balance tiers may apply the higher rate to your whole balance or only to the portion above a threshold, which changes what your balance actually earns.

To compare offers, line up APYs rather than a mix of APYs and interest rates, then convert the difference into dollars at the balance you expect to keep. On a small balance, a slightly higher APY can be outweighed by a monthly fee or a minimum balance you might sometimes miss, and fees are disclosed separately from the APY. The terms also state how often interest is compounded and credited.

Try it with your own numbersAPY CalculatorFree APY calculator. Convert an interest rate and compounding frequency into annual percentage yield, and see the interest a deposit could earn.

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Sources and further reading

Examples are illustrative and focus on U.S. personal finance. This page is educational, not individual financial, investment, tax, or legal advice. Read our editorial approach or report a correction.

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