Finance · Glossary
What is APY (Annual Percentage Yield)?
Quick definition
The yearly return on a deposit or investment, including the effect of compounding. Used when saving money.
Full explanation
APY (Annual Percentage Yield) is the effective annual rate of return on a savings account, CD, or money market account, accounting for compound interest. Two banks might advertise the same nominal rate, but if one compounds daily and the other monthly, the daily-compounding one has a higher APY. APY is the mirror image of APR: APR is what you PAY when borrowing, APY is what you EARN when saving. In 2024–2026, high-yield savings accounts offer 4–5% APY, the highest in 15 years. When comparing savings options, always use APY — not the nominal rate.
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Related terms
More from Finance
APR (Annual Percentage Rate)
The yearly cost of a loan, expressed as a percentage, including most fees. Used when borrowing money.
Compound Interest
Interest calculated on the initial principal AND on the accumulated interest from previous periods. The engine of long-term wealth.
Simple Interest
Interest calculated only on the original principal, not on accumulated interest. Used in short-term and consumer loans.
Principal
The original sum of money borrowed or invested, not including interest. The base on which interest is calculated.
Amortization
Spreading loan payments over time so each payment covers both principal and interest, with the loan fully paid off at the end.
Equity
The current market value of an asset minus any outstanding debt against it. What you actually OWN of the asset.
Last reviewed: June 15, 2026 • Category: Finance