You may have seen the term annual percentage yield (APY) when researching bank account options. Use this guide to gain a better understanding of APY and how it can keep your balance growing.
What is APY?
The APY is the annual rate of return you can expect from an account. These interest earnings may be simple—you'll earn the same amount of interest every period—or compounding, which means you’ll earn interest on the amount you put into the account as well as any earned interest.
As a standardized measure, APY makes it simple to compare different account options to determine the best one for you. While it’s important to secure a good rate, it’s also smart to choose an account with unique perks like programs that make saving automatic.
How is APY determined?
Several things can influence what APY a financial institution offers on their deposit accounts. For example, they may review their balance sheet and make adjustments for the health of their organization. Other factors include rate changes by the Federal Reserve and what competing financial institutions are offering. The higher the percentage, the better your return! Even a small amount of earned interest can help lessen the blow of market volatility and high inflation.
Are APY and interest rate the same thing?
The short answer is no. While a financial institution may list an account’s interest rate and APY as the same thing, these figures have some nuanced differences that will help you compare accounts more accurately.
For example, the interest rate does not factor in the period interest is calculated over or how often that interest is paid out to you, the accountholder. The APY does. As a result, it’s a more holistic measurement of an account’s yield.
How do I calculate annual percentage yield?
The above equation will help you calculate APY. But if math isn't your thing, using an online APY calculator is a much quicker and easier way to get accurate results!
What accounts have an APY?
-
High-yield savings accounts. A high-yield savings account is a great way to set aside funds for long-term goals because they allow you to earn based on your balance. Some even have multiple rate tiers that reward you with a higher APY as your balance grows.
-
High-yield checking accounts. You can earn interest from your spend account balance, too, with a high-yield checking account! Use this account for everyday purchases while also making money off your money.
-
Certificates. Certificates of deposit are to banks as certificates are to credit unions. The funds you use to open a certificate must be kept there for a predetermined amount of time, often ranging from a few months to a few years depending on your needs. Then, once the certificate reaches maturity, you can withdraw your balance – which is the principal amount you opened the account with plus any interest earned. Or speak to renewing?
It’s important to note that APY is variable and can change, increasing or decreasing, over time. For this reason, it’s important for the bank account you open to not only have a competitive APY, but also provide you with access to excellent service and digital tools that simplify account management.
General Electric Credit Union fits the bill. As a not-for-profit entity, our goal is to Improve the Quality of Financial Lives – a mission we accomplish through our competitive rates on deposit products, Online Banking and a top-rated mobile app, and much more. Discover the Credit Union difference and compare our interest-earning checking, saving, and certificate accounts to find your perfect match.