GlossaryBeginner
APY
Annual Percentage Yield — a return rate that accounts for the effect of compounding.
Annual Percentage Yield (APY) expresses a return rate over one year, factoring in the effect of compounding — earning returns on previously earned returns, not just on the original principal.
Because it includes compounding, APY is generally higher than the equivalent simple APR (see Kaavon's "APR" glossary definition) for the same underlying rate, assuming returns are reinvested.
Examples
- A savings product advertising a 5% APY accounts for compounding over the year.
- Comparing APY figures only makes sense when the compounding frequency is also understood.