1. What is APY?

APY (Annual Percentage Yield) represents the real rate of return earned on a savings account, taking into account the effect of compounding interest. It provides a more accurate measure of potential earnings than the nominal interest rate.

2. How Does the Calculator Work?

The calculator uses the APY formula:

Where:

• \( r \) — Nominal interest rate (decimal)
• \( n \) — Number of compounding periods per year

Explanation: The formula calculates the effective annual rate of return when interest is compounded multiple times throughout the year.

3. Importance of APY Calculation

Details: APY helps savers compare different savings accounts and investment options by showing the true annual return, accounting for compounding frequency differences.

4. Using the Calculator

Tips: Enter the nominal interest rate as a decimal (e.g., 0.05 for 5%) and the number of compounding periods per year. All values must be valid (r ≥ 0, n ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY does. APY gives a more accurate picture of actual earnings.

Q2: How does compounding frequency affect APY?
A: More frequent compounding results in a higher APY, as interest is earned on previously accumulated interest more often.

Q3: What are typical APY rates for high-yield savings accounts?
A: Rates vary but typically range from 0.5% to 5% APY, depending on economic conditions and the financial institution.

Q4: Is APY guaranteed?
A: For savings accounts, APY is typically guaranteed for a period, but rates can change based on market conditions and bank policies.

Q5: How often do high-yield savings accounts compound interest?
A: Most compound interest daily and credit it to the account monthly, but practices vary by institution.