APY (Annual Percentage Yield)
APY represents the total amount of interest earned on a deposit account over one year, including the effect of compound interest. It provides a standardized way to compare returns across different accounts.
What Is APY?
Annual Percentage Yield (APY) is the effective annual rate of return on a savings or deposit account, factoring in compound interest. Unlike simple interest rates, APY accounts for how often interest is compounded (daily, monthly, or annually).
APY vs APR
How APY Is Calculated
APY = (1 + r/n)^n - 1
Where:
Example: A 5.00% interest rate compounded daily:
APY = (1 + 0.05/365)^365 - 1 = 5.13%
Why APY Matters for Business
Current Market Context
Business savings account APYs typically range from 0.01% (traditional banks) to 4-5%+ (online banks and fintechs). Always compare APY, not the stated interest rate, when choosing where to park business cash.
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