The real rate of return on savings or investments over a year, accounting for compound interest.
APY shows how much a deposit will actually grow in a year once compounding is factored in, which makes it higher than the stated interest rate if interest compounds more than once a year. Banks are required to display APY on savings products so customers can compare offers on equal footing.
Not to be confused with: APR, which measures the cost of borrowing rather than the return on saving.
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