Watch to learn how the APY, or annual percentage yield, is calculated on accounts with compounding interest.
Annual percentage yield, or APY, measures the amount you’ll earn over 12 months on an investment that pays compound interest — such as a high-yield savings account. Choosing investments that offer compound interest vs. simple interest can help you get a higher return on your money.
For example, if you have a $10,000 bond that pays 5% simple interest over 30 years, you’ll earn $15,000 in interest over that period. Put that same amount in a bank account with a 5% APY, or 5% interest compounded yearly, and you’re walking away with an additional $33,219.42 —more than double what the bond paid out!
The more frequently your interest is compounded, the higher your APY, and the more you could earn.
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