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What is the difference between the stated interest rate and the APY?

April 26, 2017APY Interest rate

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What is the difference between the stated interest rate and the APY?

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The stated interest rate refers to the percentage of return that you will receive on your investment. APY refers to Annual Percentage Yield. If you re-invest the interest earned, you will begin to earn interest on your interest. This is called compounding interest. Therefore the APY, that which you are actually earning on your initial investment, is higher than the stated interest rate if you choose to re-invest your interest.