Learn more about common financial (and startup) terms here. To learn more about Pilot, fill out the form below.
APY or Annual Percentage Yield, is a metric used to express the annual rate of return on an investment, taking into account the effect of compounding interest. APY is often used in savings accounts, certificates of deposit, and other interest-bearing financial products. In this article, we'll show how to calculate APY, discuss its importance, and suggest strategies for improvement.
Here's the APY formula:
APY = (1 + Interest Rate / Number of Compounding Periods) ^ Number of Compounding Periods - 1
Let's consider a real-world example of a high-yield savings account offered by a bank. We'll use the following data to calculate the APY:
To calculate, plug in the numbers into the APY formula:
APY = (1 + Interest Rate / Number of Compounding Periods) ^ Number of Compounding Periods - 1
APY = (1 + 0.025 / 12) ^ 12 - 1
APY ≈ 0.0253
Convert the APY back into a percentage:
APY = 0.0253 x 100 = 2.53%
In this example, the APY of the high-yield savings account is approximately 2.53%.
Understanding APY is important for several reasons:
Here are some strategies that can help increase your APY:
Pilot provides bookkeeping, CFO, and tax services for literally thousands of startups and growing businesses. We've successfully processed over 10 million transactions for our customers and have unparalleled expertise when it comes to helping businesses succeed.
We're the largest startup-focused accounting firm in the United States, and we'd love to help you. To talk to an expert on our team and find out what Pilot can do for you, please click "Talk to an Expert" below, or email us at info@pilot.com.
Get the peace of mind that comes from partnering with our experienced finance team.