Annual percentage yield (APY) is a tool for evaluating how much a deposit earns you. Why would you look at an account’s APY? Because it is a standardized way of comparing investments. Your job as a consumer is to put your money where it will get the highest APY.
APY is the yield you earn on a deposit over a year. It refers to your earnings – how much money you’re making. Because we all want our money to work for us and grow, it is important to get a good APY from the bank.
APY takes compounding into account. In very simple terms, compounding means making earnings on your earnings. This means that the quoted APY is telling you how much you’re really making on your money. If your money is compounded daily as opposed to quarterly, you’ll be able to earn a better APY.
This is a simple way to determine how long an account with a fixed annual interest rate will take to double your money. Divide 72 by the annual interest rate, you will get a rough estimate of how many years it will take to double the initial invested amount. For example, if the account has an annual interest rate of 3%, it will take approximately 24 years to double the initial deposited amount.