subject: How to use APY calculator for calculate your Annual Percentage Yield [print this page] How to use APY calculator for calculate your Annual Percentage Yield
A lot of people don't understand how this rate is different than the APR. In fact, many banking customers don't realize an annual percentage yield even exists; often, it is not listed on brochures or other literature. In this article, we'll clarify that. We'll explore the difference between APY caluclator and APR, and discuss how you can make your deposits and investments work harder for you.
Now, let's suppose you're investing that same $1,000 into a 1-year CD paying 4% APY. The amount you'll earn is based partly on the rate (in this case, 4%) and the frequency with which your CD compounds. Let's further suppose that your certificate of deposit compounds each month, or twelve times each year. Your annual percentage yield would be 4.0742%. As a result, your bank CD would be worth $1,040.74 at the end of one year.
The APR reveals the rate you'll earn over one year on your deposits or investments. On the other hand, the APY refers to the effective yield you'll earn over one year. The best way to illustrate the difference is with an example.
Let's suppose that you have invested $1,000 into a 1-year certificate of deposit paying 4%. The annual percentage rate - or APR - you'll earn on your $1,000 is 4%. At the end of the year, you can expect your bank CD to be worth $1,040.
When you walk into your bank and open an interest-bearing checking or savings account, CD, or any investment vehicle that allows you to earn interest, you should ask about the APY. It stands for annual percentage yield and reflects how hard your money is working for you. Financial institutions will be happy to share the information with you.
Chances are, you'll take advantage of a number of products at your banking institution. You may put your money into interest-bearing checking and savings accounts, multiple certificates of deposit, and other fixed-income investment vehicles. Remember, each has its own respective APY. If the literature offered at your bank doesn't disclose it, ask. They'll be happy to tell you what the annual percentage yield is.
The difference may seem negligible, but can become significant over time and with larger sums of money. The important thing is that knowing the annual percentage yield makes it far easier to compare banking products. For example, you can compare two savings accounts at different banks offering the same APR, but you'll know the higher APY will earn you more interest.
Over time, try to move your money into bank accounts and investments that offer a higher APY. That way, you'll enjoy the peace of mind of knowing your money is working as hard as it possibly can for you.
