Banking has many acronyms that only industry insiders know. ACH, DDA
, FCRA, LTV, NSF.
APY is the projected annual return after compounding interest.
Compound interest is earned on the principal deposit and the interest itself.
Because APY includes the interest rate and compounding interest, calculating it is more complicated than simple interest.
A much easier way to calculate APY is by using a compounding interest calculator. If you have one, here’s the info you’ll need to input:
– Initial deposit amount
– Amount of money you plan to deposit each month
– APY and compounding frequency for the account
– Amount of time you plan to save and let the interest compound
Formula for Calculating APY
APY = (1 + r/n)n – 1
A $50,000 account at the above rate will grow to $50,600 if interest is c
ompounded annually, but it will grow to $50,603 if compounded monthly.