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Do You Know the Difference Between Interest Rate and APY?

When comparing savings accounts or other interest-bearing financial products, it’s crucial to understand the difference between interest rate and annual percentage yield (APY). The interest rate is the percentage of the principal amount that the financial institution pays you for holding your money in an account. It is expressed as a simple percentage and does not account for the effects of compounding, which refers to the process of earning interest on both the initial deposit and any accumulated interest.

On the other hand, APY is a more comprehensive measure that takes into account the compounding effect. It represents the effective annual rate of return, assuming that the interest is left in the account and allowed to compound. In other words, APY demonstrates the total amount of interest you can earn on your deposit over a year, given the interest rate and compounding frequency. When comparing financial products, it’s essential to use APY rather than the nominal interest rate, as it provides a more accurate representation of your potential earnings and allows for a more straightforward comparison between different accounts.

To earn a high APY select one of the Savings Accounts listed below