Annual Percentage Yield (APY)

APY tells you what a dollar in a savings account actually earns over a year once compounding is included. Compounding means the interest you earn starts earning its own interest, so an account that pays interest monthly ends the year with slightly more than its stated rate alone would suggest. APY rolls that effect into a single number, which is why banks must disclose it and why it is the right figure for comparing accounts.

APY is the savings-side cousin of APR, which describes the cost of borrowing. The more often interest compounds, daily versus monthly versus annually, the more APY exceeds the simple rate, though at typical rates the difference is small. When you shop for a high-yield savings account or a certificate of deposit, compare APYs rather than headline rates. Our emergency fund playbook explains why a high-yield account is the right home for cash you may need soon, and the high-yield savings calculator projects how a given APY grows your balance.