Annual percentage yield calculator

Annual percentage yield (APY) is a financial term that represents the total annual rate of return an investment will earn, taking into account the effects of compounding. It is expressed as a percentage and reflects the actual interest or investment earnings over a year, including the impact of reinvesting those earnings.

Unlike the nominal interest rate, which only considers the flat rate of return without factoring in compounding, APY provides a more accurate measure of the investment’s growth potential. APY takes into account how frequently the interest or earnings are compounded, such as annually, semi-annually, quarterly, monthly, or even daily.

The APY formula considers both the principal amount (initial investment) and the accumulated interest or earnings. It calculates the interest earned on the principal and any previously accumulated interest, thereby reflecting the compounding effect.

It’s worth noting that APY assumes the investment remains untouched for the entire year and that the interest or earnings are reinvested. In reality, actual returns may vary due to factors such as market fluctuations, fees, and any early withdrawals or changes to the investment.