What you'll learn:

## ➤ **What Is APY?**

Let’s talk about APY, which stands for Annual Percentage Yield.

It’s a big deal when it comes to your savings. APY is like the magic number that tells you how much money your savings could make in a year.

**Compound Interest**

To put it simply, APY is the interest your savings account earns in a year. It’s smart because it considers something called “compounding interest.”

That’s when both your starting money and the interest it earns start earning interest too.

Imagine you put $2,000 in an account that gives 1% interest each year. After one year, you’d earn $20 in interest.

But here’s the cool part. In the next year, you’d earn interest on both your $2,000 and the $20 you earned last year. So, it’s like you’re making money on your money.

**High-Yield Savings Accounts**

Now, when you’re hunting for the best place to stash your cash, look at APY. High-yield savings accounts and CDs (Certificates of Deposit) are your best bet.

They offer some impressive APYs, often over 4% or even 5%.

**Fixed vs Variable APY**

One thing to know is that APY can be either “fixed” or “variable.” Fixed APYs stay the same, while variable ones change with the market. CDs usually have fixed rates.

**APY vs APR**

Now, don’t mix up APY with APR (Annual Percentage Rate). APR is about borrowing money and doesn’t deal with compounding interest. It’s like the opposite of APY.

**APY Formula**

To figure out the APY on your account, you can use this formula: APY = (1 + r/n)ⁿ – 1, where r is the interest rate and n is how many times they add interest in a year.

So, if you put $100 for one year at 5% interest (compounded quarterly), you’d end up with $105.09.

For a simpler way, try our Compound Interest Calculator. It’s like your math wizard buddy for your savings.

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