What is the 'Annual Percentage Yield  APY'
The annual percentage yield (APY) is the effective annual rate of return taking into account the effect of compounding interest. APY is calculated by:
The resultant percentage number assumes that funds will remain in the investment vehicle for a full 365 days.
BREAKING DOWN 'Annual Percentage Yield  APY'
The APY is similar in nature to the annual percentage rate. Its usefulness lies in its ability to standardize varying interestrate agreements into an annualized percentage number.
For example, suppose you are considering whether to invest in a oneyear zerocoupon bond that pays 6% upon maturity or a highyield money market account that pays 0.5% per month with monthly compounding.
At first glance, the yields appear equal because 12 months multiplied by 0.5% equals 6%. However, when the effects of compounding are included by calculating the APY, we find that the second investment actually yields 6.17%, as 1.005^121 = 0.0617.

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What is the difference between APR and APY?
Learn about the difference between the calculations for APR and APY. APY takes into account the number of times that the ... Read Answer >> 
What are the different types of annual percentage ratings (APR)?
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What is the difference between stated annual return and effective annual return?
Essentially, the effective annual return accounts for intrayear compounding, and the stated annual return does not. The ... Read Answer >> 
What formula can I use to calculate interest on interest?
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Other than my savings account, what other types of holdings compound my interest?
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Where can I find a good compound interest calculator free on the Internet?
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