Transcript:
APY stands for annual percentage yield.
You've probably heard this term before with your accounts.
But what does APY mean?
APY defines the actual interest rate you earn on an investment or the interest you're charged for a loan.
How does it work?
Let's say you've earned 5% APY on the money in your savings account.
That means you've earned 5% interest on your money in a year.
So if you deposited $100 in an account that compounds annually,you'd have $105 at the end of the year.
Accounts can also compound monthly, weekly or daily.
The more frequent the compounding periods,the higher the amount you could earn.
So that's APY.
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LEARN MORE: Personal Finance 101: Compound Interest