We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.
So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners.
What Is APY?: Annual Percentage Yield Definition and How It Works
An annual percentage yield, or APY, is the rate of return on money in a bank account.
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Key takeaways
Annual percentage yield (APY) is a percentage that reflects the amount of money, or interest, you earn on a bank account over one year.
APY includes compound interest.
You can use a savings calculator to quickly see what you’ll earn with a given APY.
APY is short for "annual percentage yield." Almost all savings accounts, and some checking accounts, have one. The higher it is, the faster your money grows.
It’s an important term to know for anyone focused on saving more money.
What does APY mean?
APY refers to the amount of money, or interest, you earn on a bank account over one year. Of note, this includes compound interest. An interest rate is similar to APY except it doesn’t factor in compounding.
Simple interest doesn't compound, so you earn the same amount of interest every month. Compound interest, meanwhile, is the interest earned on both the money you put into the account and the interest you receive over time.
The higher a savings account’s APY, the better. Many online banks offer APYs around 0.40%. (You can read more about some of NerdWallet's favorite high-yield accounts here.) The national average is just 0.10%
. See below to compare rates and accounts and find the right option for you.
If you're willing to lock away some of your savings for a set period of time, consider a certificate of deposit, or CD. Some online banks have CD rates around 0.55%. (See NerdWallet’s list of the best CD rates.)
1.80%SoFi members with direct deposit can earn up to 1.80% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.80% APY is current as of 07/26/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
1.50%1.50% APY (annual percentage yield) with $0 minimum balance to earn stated APY. Accounts must have a positive balance to remain open. APY valid as of 07/29/2022.
1.50%Advertised Online Savings Account APY is accurate as of 08/02/2022
Min. balance for APY
$0
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
5.00%The Aspiration Save Account’s up to 5.00% Annual Percentage Yield (“APY”) with up to 71x the national interest rate is variable, subject to change, and only available to customers enrolled in Aspiration Plus after conditions are met. Customers not enrolled in Aspiration Plus receive 3.00% APY after conditions are met.
1.60%The annual percentage yield ("APY") on the deposit balances in Betterment Cash Reserve ("Cash Reserve") is 1.60% and represents the weighted average of the APY on deposit balances at the banks participating in Cash Reserve (the "Program Banks") and is current as of August 01, 2022. This APY is variable and subject to change daily. Deposit balances are not allocated equally among the participating Program Banks. A minimum deposit of $10 is required, but there is no minimum balance required to be maintained. The APY available to a customer may be lower if that customer designates a bank or banks as ineligible to receive deposits. APY applies only to Cash Reserve and does not apply to checking accounts held through Betterment Checking. Cash Reserve and Betterment Checking are separate offerings and are not linked accounts.
Min. balance for APY
$0
CDs (certificates of deposit) are a type of savings account with a fixed rate and term, and usually have higher interest rates than regular savings accounts.
CDs (certificates of deposit) are a type of savings account with a fixed rate and term, and usually have higher interest rates than regular savings accounts.
1.80%SoFi members with direct deposit can earn up to 1.80% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.80% APY is current as of 07/26/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
0.25%You’ll qualify for an annual percentage yield of 0.25% if you opt out of paper statements and have at least one electronic deposit made to your account each month, such as a direct, ATM or mobile deposit or a transfer from another financial institution.
You can use a formula to manually calculate APY, if you know your account’s interest rate:
APY= (1 + r/n )^n – 1,
In which:
r = interest rate
n = number of compounding periods (if interest is compounded monthly, this would be 12)
Your bank or credit union could also provide you with your APY.
If you know your APY, you can quickly see what you’ll earn in a certain period of time with our savings calculator. You can simply plug in your starting balance, the amount you’d add each month, the amount of time and the APY.
How compound interest works
Compounding occurs in a set period, usually daily or monthly. Interest compounded daily leads to more money than interest compounded monthly.
But it’s generally too small to worry about unless you’re dealing with large amounts — and even then, it won't make a significant difference. For example, $100,000 in an account with a 0.50% APY earns only $0.10 more in one year when compounded daily instead of monthly. (Read more in our compound interest explainer.)
When shopping around for a new savings account or CD, finding a high APY should be a priority. The higher the rate, the faster your cash will grow.
That depends on the savings product. If you have a savings account, your APY is variable, and may increase or decrease based on market conditions. If you have a CD, the rate you have when you sign up is typically the rate you’ll receive throughout your term. But if you sign up for another CD later, you may receive a different rate.
When the Federal Reserve increases its benchmark interest rate, the APYs on savings accounts and new CDs tend to increase as well. But when the Fed cuts its benchmark rate, as it did twice in March 2020
Board of Governors of the Federal Reserve System Policy Tools. Open Market Operations. Accessed Apr 15, 2022.
Online banks generally offer the best available APYs regardless of the benchmark rate — even though these institutions tend to cut their APYs when rates are down, they also increase them when rates are up.
The key thing to remember is this: Because online banks offer the best rates on savings accounts, they can help you grow your money faster than traditional brick-and-mortar banks.
APY, or annual percentage yield, is different from APR, or annual percentage rate. Generally, APY refers to interest you’ll earn, and APR refers to interest you’ll pay.
APY is the percentage rate of the total amount of interest earned on a deposit account, based on the interest rate and the compounding frequency for one year. APR is the percentage rate reflecting the cost of credit for a year.
What is a good APY?
The national average savings rate is 0.10% APY, but you can easily find rates that are higher than that. Some of the best savings rates come from online banks and are around 0.45%.
How is APY calculated?
The formula to calculate APY accounts for the interest rate and the number of compounding periods there are in a year.
If you know your APY and want to quickly see the amount of interest you’ll earn on your balance at that rate, you can use an online tool such as our compound interest calculator.
APY vs. APR: What’s the difference?
APY, or annual percentage yield, is different from APR, or annual percentage rate. Generally,
APY is the percentage rate of the total amount of interest earned on a deposit account, based on the interest rate and the compounding frequency for one year. APR is the percentage rate reflecting the cost of credit for a year.
What is a good APY?
The national average savings rate is
0.10%
APY, but you can easily find rates that are higher than that. Some of the best savings rates come from online banks and are around 0.45%.
How is APY calculated?
The formula to calculate APY accounts for the interest rate and the number of compounding periods there are in a year.
If you know your APY and want to quickly see the amount of interest you’ll earn on your balance at that rate, you can use an online tool such as our
