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Annual percentage yield (APY) and annual percentage rate (APR) might sound similar, but they play very different roles. APY is about what you earn on savings accounts—it's your gain.
This is a reasonable approximation if the compounding is daily. Also, a nominal interest rate and its corresponding APY are very nearly equal when they are small. For example (fixing some large N), a nominal interest rate of 100% would have an APY of approximately 171%, whereas 5% corresponds to 5.12%, and 1% corresponds to 1.005%.
Another way of defining APY is that it represents the real rate of return you can earn in one year if interest is compounded. And the more often interest is compounded, the higher the APY will be ...
The terms "APY" and "interest rate" are often used interchangeably when people discuss savings and investments, but there's a very important distinction between the two. While it's important to...
The effective interest rate (EIR), effective annual interest rate, annual equivalent rate (AER) or simply effective rate is the percentage of interest on a loan or financial product if compound interest accumulates in periods different than a year. [1] It is the compound interest payable annually in arrears, based on the nominal interest rate ...
For example, suppose you have a savings account with an APY of 5 percent. That APY accounts for the simple interest rate and the additional interest due to monthly compounding earned in a year. If ...
To calculate approximately how much interest one might earn in a money fund account, take the 7-day SEC yield, multiply by the amount invested, divide by the number of days in the year, and then multiply by the number of days in question. This does not take compounding into effect.
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