# Annual Percentage Yield - APY

- Annual Percentage Yield - APY
- The effective annual rate of return taking into account the effect of compounding interest. APY is calculated by:

The resultant percentage number assumes that funds will remain in the investment vehicle for a full 365 days.
The APY is similar in nature to the annual percentage rate. Its usefulness lies in its ability to standardize varying interest-rate agreements into an annualized percentage number.

For example, suppose you are considering whether to invest in a one-year zero-coupon bond that pays 6% upon maturity or a high-yield money market account that pays 0.5% per month with monthly compounding.

At first glance, the yields appear equal because 12 months multiplied by 0.5% equals 6%. However, when the effects of compounding are included by calculating the APY, we find that the second investment actually yields 6.17%, as 1.005^12-1 = 0.0617.

*Investment dictionary.
Academic.
2012.*

### Look at other dictionaries:

**Annual percentage yield (APY)** — The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of… … Financial and business terms

**Annual Percentage Yield** — (APY) expresses an annual rate of interest taking into account the effect of compounding, usually for deposit or investment products (such as a certificate of deposit). It is analogous to the Annual percentage rate (APR), which is used for loans … Wikipedia

**annual percentage yield** — ( APY) A precisely calculated measure of yield paid on a bank deposit account. American Banker Glossary ( APY) The effective, or true annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect… … Financial and business terms

**Annual percentage rate** — Parts of total cost and effective APR for a 12 month, 5% monthly interest, $100 loan paid off in equally sized monthly payments. The term annual percentage rate (APR), also called nominal APR, and the term effective APR, also called EAR,[1]… … Wikipedia

**annual percentage yield** — /ˌænjuəl pəˌsentɪdʒ ji:ld/ noun the annual rate of compound interest earned by an account. Abbreviation APY … Dictionary of banking and finance

**APY** — annual percentage yield (APY) A precisely calculated measure of yield paid on a bank deposit account. American Banker Glossary ( annual percentage yield) The effective, or true annual rate of return. The APY is the rate actually earned or paid in … Financial and business terms

**annual rate of return** — There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate ( APR).… … Financial and business terms

**Apy** — or APY may refer to:*Annual Percentage Yield *Anangu Pitjantjatjara Yankunytjatjara, an Australian Aboriginal Community *Äpy, a magazine … Wikipedia

**APY** — Annual Percentage Yield (Business » Accounting) … Abbreviations dictionary

**APY** — abbr. Annual Percentage Yield … Dictionary of abbreviations