Use the Annual Percentage Yield Calculator (APY Calculator) to calculate the effective annual rate of return when taking into account the effect of compound interest. Annual Percentage Yield (APY) is similar to Annual Perscentage Rate (APR) but used for measuring investments whereas APR is used for measuring loans.
|Annual Percentage Yield|
Are you thinking about investing your saved up money to earn interest? If yes, then wouldn't you want to earn the highest interest possible? The APY or Annual Percentage Yield is a tool, which helps to evaluate the amount of interest earned on a certain amount of money.
When compared to the simple interest method of rating the quote, the APY gives a better picture of the amount of money that can be earned. A figure telling us how much money can be earned with compound interest, the APY will let us know the amount of money earned on the original deposit as well as the interest which is earned. Let's see how APY is important for your business.
When you deposit the funds into a savings account, you will earn a certain amount of interest. The APY is the best tool to understand the amount of interest earned. This information is of great help when you must decide which bank to choose. It also helps you in deciding whether the money should be fixed in the CDs in pursuit of getting a high rate.
The uniqueness of APY lies in the fact that it considers compounding as the principle of calculating the interest. This happens because interest is earned on the interest that have already been received. This implies that the earning is more than the quoted rate of interest. Let's discuss the concept of compounding briefly.
When you borrow or invest an amount, the total interest earned or paid depends on the number of times, the interest gets compounded. This compound interest is added to the principal amount of the loan or the investment, resulting in the additional interest also earning interest.
Compounding can be defined as a way of charging or earning interest on interest, resulting in capital gains or the exponential growth of the debts. The more frequently compounding occurs the more interest is generated.
The presence of compounding makes APY a superior method when compared to annual percentage rate (APR), both are applied to investment products and loans, they both affect the amount you earn or pay as interest. However, let's see how they are different from each other.
The APR is calculated by multiplying the periodic interest rate by the number of periods in a year. It ignores the concept of compounding. Whereas APY is calculated by taking the compounding into consideration which allows the interest to grow more respective to APR. The detailed method of calculating APY is mentioned below.
Though APY is generally used for investment calculations only the compounding interest rates usually apply to mortgages as well. The use of APR can be seen in the calculation of credit card liabilities.
The calculation of APY can be done manually as well as with an online calculator such as APY calculator by iCalculator. Let's have a look at the functions of the calculator.
The APY calculator uses the following algorithm for calculating the APY for you:
On the basis of your inputs the calculator will provide you with the figure for APY for your investments. The APY ratio is useful for both individual investors and corporate investors, and using the APY calculator helps in gauging the profitability of a deposit account while helping you understand whether the investment will have a good return or not. We have to just enter a few details to get the final balance. Let's take a look at some of the many advantages of using the APY calculator.
Choose from many options - You can verify the interest offered by the banks and ask your bank for the deals where the compounding interest rate is offered rather than simple interest rate.
Get the best deal - You may compare various offers from different banks and even different offers within the same banks, you can be sure of getting the best deal possible.
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