What Is APY (Annual Percentage Yield)?
What is APY? It stands for Annual Percentage Yield, the standardized rate banks use to disclose how much a savings account, CD, or money market account will actually earn over a year, including the effect of compounding.
What APY Stands For
In the United States, APY is federally regulated under the Truth in Savings Act, with the exact calculation method defined by the Consumer Financial Protection Bureau's Regulation DD (Appendix A to Part 1030). That regulation specifies that APY reflects the total interest earned on a deposit over a 365-day period, factoring in the account's compounding schedule, expressed as a single percentage.
How APY Differs From a Plain Interest Rate
A stated interest rate alone doesn't reflect compounding. APY does. If a bank advertises a nominal rate that compounds monthly, the account's actual APY will be slightly higher than that stated rate, because each month's interest starts earning its own interest. That's why comparing APY, not the nominal rate, is the accurate way to compare two accounts.
The APY Formula
APY is calculated as:
APY = (1 + r/n)n − 1
where r is the nominal annual interest rate and n is the number of compounding periods per year. For example, a 4.40% nominal rate compounded monthly produces an APY of about 4.49%, slightly higher than the stated rate.
What Counts as a Good APY Right Now
National average savings account APYs have historically sat well under 1%, based on FDIC-reported data, while high-yield savings accounts have commonly offered APYs in the 3% to 5% range in recent periods. This figure moves with the Federal Reserve's benchmark rate, so treat any specific number, including the examples on this page, as a snapshot rather than a permanent fact — check current rates before making a decision.
How to Use APY to Compare Accounts
When shopping for a savings account or CD, compare APY rather than the advertised interest rate alone. Watch for minimum balance requirements that could reduce your effective yield if you don't meet them. Use the Savings Interest Calculator to see what a specific APY actually means in dollars for your own deposit and timeline.
Frequently Asked Questions
Is APY the same as interest rate?
No. Interest rate is the nominal rate; APY includes the effect of compounding, so it's usually slightly higher than the stated rate for the same account.
Is APY regulated?
Yes. In the U.S., APY is regulated under the Truth in Savings Act, with the calculation method set by the Consumer Financial Protection Bureau's Regulation DD.
Does a higher APY always mean more money?
Generally yes for the same deposit and timeframe, but check for balance minimums or fees that could reduce the effective return.
How often do APYs change?
Variable-APY accounts can change at the bank's discretion, often tracking the Federal Reserve's benchmark rate. Fixed-rate products like CDs lock in the APY for the term.
Sources
- APY is regulated under the Truth in Savings Act, calculation method set by Regulation DD — Consumer Financial Protection Bureau
- APY formula — Axos Bank
Cedrick Reese
Savings Interest Calculator was created by Cedrick Reese, a retired veteran and web developer who enjoys building free, user-friendly online tools that simplify everyday tasks. His journey began in the early 2000s with affiliate marketing and niche site development, which grew into a passion for creating practical digital utilities and calculators. After retiring, he earned a Computer Systems Technician certificate from UEI College, completed Electro-Mechanical Technologies at Tulsa Welding School, and finished the Carpentry program at Florida State College at Jacksonville. Today he combines his technical background and craftsmanship by building furniture using traditional woodworking methods, gardening, and developing helpful online tools for users worldwide.