Question 1

What is the difference between APR and APY?

Accepted Answer

APR (Annual Percentage Rate) is the nominal interest rate without compounding. APY (Annual Percentage Yield) is the effective annual rate accounting for compounding. APY is always equal to or higher than APR. More frequent compounding increases APY.

Question 2

How does compounding frequency affect APY?

Accepted Answer

More frequent compounding increases APY. For the same APR, daily compounding yields the highest APY, followed by monthly, quarterly, semi-annually, and annually. The difference becomes more significant with higher interest rates and longer time periods.

Question 3

How do I use APY to compare savings accounts?

Accepted Answer

Use APY to compare different savings accounts because it shows the true annual return accounting for compounding. A higher APY means more interest earned. Compare APY rather than APR to make accurate comparisons across different banks and accounts.

Question 4

Can I calculate interest earned with APY?

Accepted Answer

Yes! Enter your principal amount along with APR and compounding frequency. The calculator shows the APY and calculates how much interest you'll earn in one year, helping you understand the true return on your savings or investment.

Question 5

Why is APY important for investments?

Accepted Answer

APY shows the effective annual return accounting for compounding, which is crucial for comparing investment options. It helps you understand the true growth potential of your money over time, especially for long-term investments where compounding has significant impact.

APY Calculator - Annual Percentage Yield, APR Comparison & Interest Calculator

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