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Following our earlier example, if your dividend rate at a credit union is 4.5% and interest is compounded monthly, your APY would be 4.59% for the same account.
Converting an annual interest rate (that is to say, annual percentage yield or APY) to the monthly rate is not as simple as dividing by 12; see the formula and discussion in APR. However, if the rate is stated in terms of "APR" and not "annual interest rate", then dividing by 12 is an appropriate means of determining the monthly interest rate.
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That APY accounts for the simple interest rate and the additional interest due to monthly compounding earned in a year. If you had $10,000 in the account, you’d earn $500 in interest after one year.
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%.
The APY reflects the rate of return you can expect on a savings account over the course of a year when compound interest is factored in. The higher the APY, the more interest you can earn.
An account's APY is the total amount of interest you'll earn on your deposit over one year, including compound interest, expressed as a percentage, with many HYSAs compounding daily or monthly.
Today’s highest savings rates are at FDIC-insured digital banks and online accounts paying out rates of up to 5.50% APY with a $1,000 minimum at Poppy Bank and up to 5.33% APY with no minimums ...