What factors should I consider when investing in an APY plan? APY indicates how much banks would add to your investment at the end of the tenure. On the other hand, APY stands for Annual Percent Yield and tells you how your money can grow over time by leveraging the power of compounding. It implies the interest you would pay when you take a loan such as an educational loan, housing loan, etc. Are APR and APY both same?īoth are different. Well, isn’t the difference clear? You can calculate the APY using our online APY calculator and make fruitful investment decisions.įAQs about APY I have heard the term APR.
The same $2000 will give $3200 after 10 years on simple interest, while you get $3638.79 on the same investment compounded monthly for 10 years. If the difference seems small for one year, let us understand the power of compounding in the long run. The plan with compound interest will give you $2,123.36 at the end of the year, compounded monthly. Now, the plan that works on simple interest will give you $2120 at the end of one year. You can choose to put it in simple interest or compound interest as per the investment plans your bank offers.Īssume the interest is 6% - for both the plans with simple interest and compound interest. Let us understand APY calculation with an example: N = number of compounding periods per year (for ex: n=2, if compounding interest is half-yearly) The final amount that you would receive invested in the APY plan would be: A = I(1 + r/n) n*y
The formula for calculating Annual Percent Yield is A = I(1 + r/n) n*y -1.
Annual Percent Yield is calculated on the amount of the investment plus the interest it makes in a given tenure.Simple interest is calculated on the amount of the investment for a given tenure.The difference between simple interest and annual percent interest is: Annual Percent Yield, also termed as ‘annual interest yield' or the ‘effective annual rate is the actual interest you would earn if your investment were to be compounded.