Annual Percentage Yield

Annual Percentage Yield is the standardized measure banks and credit unions use to express how much interest a savings product earns in one year, factoring in compound interest. While APR tells you what rate the institution charges or pays on a nominal basis, APY reveals the true return after interest compounds on previously earned interest.

For example, a savings account advertising a 5.00% nominal rate compounded daily will have an APY of approximately 5.13%. The more frequently interest compounds, the wider the gap between the nominal rate and the APY. This is why comparing APY rather than stated interest rates gives consumers a more accurate picture when shopping for savings accounts, certificates of deposit, or money market accounts.

Federal regulations under the Truth in Savings Act require financial institutions to disclose APY prominently, ensuring consumers can make apples-to-apples comparisons. When interest rates rise, high-yield savings accounts and CDs become especially attractive, and understanding APY helps savers maximize returns without taking on additional risk.