Summary
- Interest is what a bank pays for holding your money.
- APY includes the effect of compounding over a year.
- The example numbers here are illustrations only.
Section 1.0
Definitions
- Interest rate: the percentage paid on a balance.
- APY: the yearly rate including compounding.
Section 2.0
A simple illustration
If 1,000 earns an APY of 2 percent for a year with no deposits or withdrawals, it would grow to about 1,020. This is an illustration, not a current rate.
Section 3.0
Where to find the APY
Account disclosures list the APY and how often interest is paid.
Section 4.0
Questions to ask
- Is this rate fixed or variable?
- How often is interest added?
- Are there balance requirements?
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