What is APY

by Gil on November 8, 2012

In the world of banking, there are many terms and words that might confuse you. One example of these words is APY or annual percentage yield, interest rate, maintaining balance and many more

There are also some criteria you need to know before choosing a bank. So what are your criteria in choosing a bank account, say savings or checking account? If you search in the Internet the tips on how to choose a bank account, you could get many results and the websites discussing the ways to select a good bank account.

What is APY?

In my opinion, one factor in choosing the best bank account that you should consider as a depositor is the annual percentage yield (APY) or the interest rate per annum it gives to depositors like you. It is the annual nominal interest rate of a savings or checking account plus the effect of compounding. It is one of the best indicator of a good bank account.

Normally, APY of most banks ranges from 0.25% to 4%. Most online banks have higher APY than traditional banks because they have lower operating and overhead cost.

The mathematical equation for computing APY is as follows:

APY = (1 + Inom/N)^N -1 where I nom is the nominal interest rate per year and N is the number of compounding per year.

What is APY?

As a depositor, your aim is to select the bank account with the highest interest rate so that you could earn more money from the deposit you have put in your account. The best way in finding the bank that gives the highest rate is by looking it in the Internet.

Most banks nowadays have theirĀ  own websites where you can see the details of their products and services including the details of savings account. Thus, it would be easier for you to know which type of account would be the best choice.

Before opening an account to your prospect banks, you must check first which one has the highest APY. The higher the APY, the more money will you make from the deposits you put in your account.

Although high APY is only one indicator of a good bank account, it is worth investigating which bank pays the much. Some of the factors that you might consider in selecting a bank for your savings, checking or term deposit are FDIC insurance, Internet banking services, customer service, perks and other privileges.

Last Note






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About the Author:

GilGil Tenorio is a blogger, a husband, a father, and an active Christian. He likes playing guitar, C.S. Lewis, Plants and Zombies and NBA. Follow him at Facebook, Google+, YouTube and Twitter. Thanks!

 

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