2006-09-26 08:18:04 · 5 answers · asked by rkadiwar 1 in Business & Finance ➔ Investing
Interest rate is typically your annual interest rate. APY is your compounded rate of return. So a 5.0% int rate might yield you 5.12% in a year if compounded daily.
Hope that helps!
2006-09-26 08:28:47 · answer #1 · answered by Yada Yada Yada 7 · 2⤊ 0⤋
The APY is the compounded rate and the Interest Rate is not compounded.
CDs use a method called "Actual/360" which means that they compound every day -- but use a rate assuming that there are 360 days per year.
For example, if the rate is 6%, then the daily rate will be 6%/360. Since it coupounds daily, after one year you would get the following on an investment of $100.
$100*(1+6%/360)^365 = $106.27
The interest rate of 6% will have an APY of 6.2716%
2006-09-26 09:33:32 · answer #2 · answered by Ranto 7 · 1⤊ 0⤋
Interest rate is a rather vague term and some accounts pay the interest monthly, others annually etc.
In order to reduce confusion and enable ordinary people to make fair comparisons the government requires banks to state the annual percentage yield ( APY) calculated in a uniform way, which shows what the interest would be, if it was paid at the end of the year, overlooking any temporary bonuses etc.
2006-09-26 09:02:33 · answer #3 · answered by Anonymous · 0⤊ 0⤋
When the annual percentage Rate is compounded, the APY, annual percentage yield becomes more that the Rate.
Compounded means that periodically, interest is paid on top of the accumulated interest throughout the year.
2006-09-26 08:30:42 · answer #4 · answered by ed 7 · 0⤊ 0⤋
Interest rate is actual rate and APY is your principle rates.
2006-09-28 23:51:33 · answer #5 · answered by Anonymous · 0⤊ 0⤋