1. What is APY?

APY (Annual Percentage Yield) is the real rate of return earned on a savings account when compounding interest is taken into account. Unlike simple interest rates, APY reflects the actual amount you'll earn over a year.

2. How Does the Calculator Work?

The calculator uses the APY formula:

Where:

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

Explanation: The formula accounts for the effect of compounding, showing how interest earns more interest over time.

3. Importance of APY Calculation

Details: APY helps compare savings accounts by showing the true annual yield. Higher APY means more earnings on your savings.

4. Using the Calculator

Tips: Enter the annual interest rate as a decimal (e.g., 0.05 for 5%) and the number of times interest compounds per year (e.g., 12 for monthly).

5. Frequently Asked Questions (FAQ)

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

Q2: How often do savings accounts typically compound?
A: Most compound daily, but some may compound monthly, quarterly, or annually.

Q3: Why does APY increase with more compounding periods?
A: More frequent compounding means interest is calculated on previously earned interest more often.

Q4: What's a good APY for savings accounts?
A: As of 2023, high-yield savings accounts typically offer 3-5% APY, while regular accounts offer much less.

Q5: Does APY account for fees?
A: No, APY only reflects the interest rate and compounding. Account fees would reduce actual earnings.