Budget & Savings Term of the Week
Annual percentage
yield is the amount you earn on an interest-bearing investment in a year,
expressed as a percentage. For example, if you earn $60 on a $1,000 certificate
of deposit (CD) between January 1 and December 31, your APY is 6%.
When the APY is the same as the interest rate that is
being paid on an investment, you are earning simple interest. But when the APY
is higher than the interest rate, the interest is being compounded, which means
you are earning interest on your accumulating interest.
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