APY and compound interest, explained

APY (annual percentage yield) is the interest you earn on savings over a year, including compounding. It's the number to compare between accounts.

How it works

• Compounding means you earn interest on your interest
• APY already includes compounding, so it's the fair comparison
• Savings account rates are usually variable and can change at any time
• An introductory rate may drop after a few months

Example

$5,000 at 4% APY earns about $200 in a year. At 0.5% APY, it earns about $25. Same money, same safety if both are insured.

General educational information, not financial advice. Rates and fees change; check with your bank or credit union. Nickel Savings isn't paid by any bank or financial company.