Trying to understand easily the difference between a posted intrest rate and an APY when it comes to a high yeild savings account or money market account. Does the same intrest rate always yield the same APY? Does a 5% intrest rate always give you a 5.11% APY or does it vary depending on if its calculated daily.................a little lost here.
Thanks!
Brett
2007-12-20 10:39:01 · 5 answers · asked by Brett G 1 in Business & Finance ➔ Personal Finance
APY (Annual Percentage Yield) is the amount your deposit would yield if left alone for 1 year. $1000 at 5.11% APY would be worth $$1051.10 after 1 year. That is the same as 5% compounded monthly. The first month, your interest is $1000 x 5% ($50) / 12 = $4.17. The second month, your interest is $1004.17 x 5% / 12 = $4.18. Your balance is then $1008.35. The balance, and the monthly interest increase each month to give the equivalent of a single 5.11% payment at the end of the year.
2007-12-20 13:22:45 · answer #1 · answered by STEVEN F 7 · 1⤊ 2⤋
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Difference between Intrest Rate and APY?
Trying to understand easily the difference between a posted intrest rate and an APY when it comes to a high yeild savings account or money market account. Does the same intrest rate always yield the same APY? Does a 5% intrest rate always give you a 5.11% APY or does it vary depending on if its...
2015-08-06 19:35:32 · answer #2 · answered by Anonymous · 0⤊ 0⤋
Difference Between Apr And Apy
2016-10-02 07:14:02 · answer #3 · answered by cinnante 4 · 0⤊ 0⤋
Interest rate is the day to day rate that you receive. APY stands for Annual Percentage Yield, meaning that is the annual rate you get each year. The APY winds up being higher because the interest rate is compounded...
2007-12-20 10:44:41 · answer #4 · answered by Dowjones 2 · 0⤊ 1⤋
Because you are paying interest not only on the principal but the interest that accumulates daily. So if you owe 1000 dollars to someone at 5% they end up getting more than 5% because at the end of the first month the principal is now 1004 and they are getting the interest on that extra 4 dollars. Hope that makes sense...if not i will explain it this way....
Interest rate is 5% on a CD that you put 1000$ into. 5% is 50 per year, but because the interest compounds, you actually have 51.11 at the end of the year. So your YEILD is higher.
2007-12-20 11:18:08 · answer #5 · answered by Anonymous · 0⤊ 2⤋
Great topic, just what I was searching for.
2016-08-26 13:05:19 · answer #6 · answered by janeth 4 · 0⤊ 0⤋