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APY can make a huge difference in the outcome of your savings. You want to make sure your money is working for you, and even a few fractions of a percent can mean the difference in meeting your savings goals.

Using our calculator is a great way to figure out exactly which checking accounts or high-interest savings options are best for you. Just add your projected savings to see the total difference in value between APY rates over time.

To learn all about how to use an APY calculator and what this acronym can mean for your future, read the Q & A below.


Why use an APY calculator?

If you plan on saving for your future, you need to be considering your APY. An APY calculator is a tool you can use to determine how much return an account can offer you.

APY calculations can seem complex at first, but they come down to a few simple variables. Our tool looks at two factors: amount of interest and compound frequency.

Compound frequency refers to how often the bank adds interest earnings into the initial deposit, at which point you will begin earning interest on that interest.

This calculator enables you to compare your yield across three APY options. You can compare a savings account to a CD, or to other savings accounts from different financial institutions.

What is APY?

Saving for the future comes with a lot of complex terminologies that can get confusing.

One of these terms is APY. If you've ever heard a financial planner talk about the APY on your CD, you may have wondered what they were talking about.

APY stands for annual percentage yield. This is also sometimes known as the effective annual rate, or EAR.

APY considers possible gain from an investment and return of balance in deposit accounts.

It differs from compound interest because while compound interest reflects how much money you will gain from an investment, APY reflects an annual percentage that you will get back.

APY is very different, however, from APR, which is usually associated with taking out loans and mortgages.

What types of accounts gain APY?

APY applies to most savings accounts. In fact, one of the major factors you should consider when choosing a bank or a savings account is their APY rate. The national average is about 0.07 percent, but some banks can go as high as 1.50 percent.

Certificate of deposit accounts, or CDs, are particularly popular with those looking for high APY. These savings accounts require you to keep your money in the account for a fixed amount of time - typically between three months and five years.

The longer the term length (and they can range up to decades long), the higher the interest rate you will receive.

What impacts your interest level?

There are a few factors that can impact your account's interest level.

Among these are, of course, your account balance and your account's annual interest rate. But, as you may have already gathered, one of the biggest factors affecting your APY is your compound frequency.

Typically, the longer the compound frequency on your account, the higher your APY will be.

So, for instance, if your account compounds annually, you may have an APY of 1 percent. However, if your account compounds quarterly, you may only have an APY of 0.25 percent.

How do you calculate APY?

The basic formula for APY is:

APY = (1 + r / n) n - 1

In this equation:

  • r equals the interest rate on the account
  • n equals the number of times the interest compounds each year

This is the formula to calculate APY manually, but using an online calculator can help to make life a bit easier.

How fast will interest add up?

Of course, the bottom line with APY is how much interest you'll be able to build up in the account.

A small difference in your APY can mean the difference between your child going to the local community college and going to an Ivy League.

So how much money and time does it take to make a difference in those dividends? One of the perks of using our calculator is that it allows you to input an initial balance that you can work from.

So let's say you put $1,000 into your savings account to begin with.

You can input that figure, along with the rest of your information, and figure out what your final balance will be after a set amount of time with up to three institutions.

Who should you talk to about your APY?

Saving for your future is one of the most important investments you can make.

Whether you want to send a child to college, build your dream house, or plan for retirement, having an investment account helps you gets you the most for your money.

It is one of the most essential steps in ensuring a bright future for you and your family.

Knowing who to ask about APY rates can be tricky, especially if you're shopping around for a new bank or starting a retirement account.

Your banker is a good person to ask about APY rates. You may want to shop around with various banks (in person and online) to find the one with the best APY rates.

If you have a financial advisor, they may be able to direct you to an account with good APY.

Typically, online accounts come with the best rates. Online banks have less overhead, allowing them to offer a high yield. And as always, get unbaised advice by using a savings calculator.

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