See how much interest you will earn at any APY rate. Compare savings accounts and CDs.
APY (Annual Percentage Yield) represents the total return on a deposit over one year, including the effect of compound interest. Banks typically compound interest daily, meaning each day's interest is added to your balance and earns interest the next day. This is why APY is always slightly higher than the stated interest rate (APR).
The difference is staggering. The national average regular savings account APY is approximately 0.45%. High-yield savings accounts from online banks offer 4.0-5.0% APY. On a $10,000 deposit, the difference over one year is about $405 in extra interest. Over 5 years, that gap compounds to over $2,200. There is almost no reason to keep significant cash in a low-yield account.
APR (Annual Percentage Rate) is the stated interest rate without accounting for compounding. APY includes the compounding effect, making it higher. For savings accounts, always compare APY since it reflects what you actually earn. For loans, APR is typically quoted, and the actual cost is slightly higher due to compounding.
Deposits at FDIC-insured banks are protected up to $250,000 per depositor, per bank, per ownership category. This means your savings are safe even if the bank fails. High-yield online banks are FDIC-insured just like traditional banks. There is no additional risk from the higher rate.