← Dictionary
APY (Annual Percentage Yield)
Plain English
The total amount of interest you'll earn on savings in a year, including the effect of compounding.
Professional definition
The effective annual rate of return on a deposit account, accounting for the effect of compounding interest, as required for disclosure under the Truth in Savings Act.
Example
A savings account with a 4% APY compounded monthly will earn slightly more over a year than a flat 4% simple interest rate would.
Common misconception
APY (for savings) and APR (for borrowing) are often confused — APY already includes compounding, while APR generally does not.