Business, Legal & Accounting Glossary
Whether you are borrowing money to make a large purchase or depositing your money in a financial institution so you can make money (e.g., savings account, certificate of deposit), you will need a basic understanding of some key financial terms: annual percentage rate, annual percentage yield, and finance charges.
The Annual Percentage Yield is the annual rate of interest plus the effect of compounding on the interest earned. This is the number quoted when banks and other financial institutions try to get you to deposit money in savings accounts or buy certificates of deposit.
In these cases, you are the lender, so the higher the APY, the more money you will make from amounts on deposit.
Compound Interest Formula For Interest Paid Once a Year
A = P X (1+APR)Y
The annual percentage yield (APY) is the actual percentage by which a balance increases in one year. It is sometimes also called the effective yield or simply the yield.
APY = relative increase = absolute increase / Starting principal
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This glossary post was last updated: 14th April, 2020 | 1 Views.