What is Annual Percentage Yield in a bank CD?
It means the annual interest rate is 2.96%, but since the interest is probably compounded daily, weekly or monthly instead of annually, the amount of interest you receive is higher than the interest rate. Compounding means that the bank will calculate the amount of interest that you’ve earned after each compounding period and add the interest to the principal, which increases the amount of money that you’re earning interest on throughout the term of the CD. Also keep in mind that 3% is a very low interest rate. If inflation is more than 3%, which it might very well be in the coming year, then you’re actually losing money, and possibly paying taxes on your earnings to boot.
