When it comes to CD's what is the difference between the APY and the interest rate???

Question

In terms anyone can understand please

Answer 1

The APY (annual percentage yield) represents your total return in percentage terms over a one year period when the compounding of interest is taken into consideration. Making it simple, if an interest earning product such as a cd accrued interest but did not compound interest (i.e. it did not actually add interest to the principal balance) during the year then the interest rate and the APY would be exactly the same. However, most interest earning products add interest earned to the principal balance during certain intervals during the year (common intervals are monthly or quarterly) and therefore, when the interest is added to the principal the interest amount added to the principal balance also begins to earn interest. Therefore, the difference in the interest rate and APY is the additional return you earn during the year directly from the interest earned on the interest that was added to the principal balance.

Answer 2

In basic english. If you had 10,000 at 6%, then the annual interst is $600. This is about $1.80 per day in interest. What happens is that on day 2 you are paid at 6% per year on 10,001.80. Since the balance goes up each day then the total interest earned over the couse of the year is in excess of 6%. So if APY is 6.1% then they will pay you $610 interest on the 10,000 loan.

Answer 3

i don't know