Annual Percentage Yield (APY)

Annual Percentage Yield (APY) is the figure US banks and credit unions must quote when advertising deposit accounts — savings accounts, money market accounts, CDs, and interest-bearing checking. It expresses the total interest earned over a year as a single percentage, assuming the funds and any interest stay in the account for the full term, so two products with different compounding frequencies can be compared on a like-for-like basis.

APY is the disclosure regulators settled on under the Truth in Savings Act (Regulation DD) precisely because the “nominal” or “stated” rate can be misleading. An account paying a 5.00% nominal rate compounded monthly has an APY of roughly 5.12% — the extra basis points come from earning interest on interest each month. The more frequent the compounding, the larger the gap between nominal rate and APY.

Two things APY does not capture:

• Taxes. Interest on most US deposit accounts is taxed as ordinary income at federal (and often state) level. The after-tax return on a 5% APY account is closer to 3.5–4% for most earners.
• Promotional period. Many high-yield accounts advertise an APY that only applies for the first few months, or only up to a balance cap. Read the disclosure for the rate that applies after the intro period.

APY is the savings-side analog of APR on the borrowing side: APR rolls fees into the cost of a loan; APY rolls compounding into the return on a deposit. Outside the US, the equivalent figures are AER (Ireland, UK) and EAR (Europe more broadly).

Use the compound interest calculator to see how APY and compounding frequency combine over multi-year horizons, or the savings goal calculator to size monthly contributions toward a target.