Annual Percentage Yield (APY)

The real rate of return on an investment that takes into account the impact of compounding interest is known as the annual percentage yield (APY). Compound interest is computed more often than simple interest and is added to the account balance right away. The interest paid on the amount also increases as the account balance increases somewhat with each succeeding period.

The annual percentage yield (APY) is the real rate of return that will be earned in a year if interest is compounded.

Periodically, compound interest is applied to the entire amount invested, raising the balance. As a result of the greater debt, each interest payment will be higher.