How Do You Calculate Annual Percentage Yield?
The Annual Percentage Yield is the amount an account actually grows over the course of a year assuming there is a set deposit amount that isn’t touched over the course of the year. It is far more accurate in assessing the productivity of an account than Annual Percentage Rate since it factors in compounding of interest. Start with the Annual Percentage Rate of an account. That is the amount of interest the account is paying over the course of one year. Factor in how often interest is compounded. The more often interest is compounded the higher the Annual Percentage Yield will be. An account that compounds interest daily will yield more money than an account that compounds monthly or quarterly. Understand that the Annual Percentage Yield will always be higher than the Annual Percentage Rate of an account. This is because you are earning interest on your interest over the course of the year. Calculate the Annual Percentage Yield with the following formula: APY = (r/n +1)^n – . Divide the
