ield," is an important measure of interest rates that allows you to compare rates across bank accounts on an apples-to-apples basis.the effects of compounding
In this formula, r is the interest rate and n is the number of compounding periods per year. If an account compounds monthly, n is 12, for example. This works with nearly any type of savings or investment account includingTo get a better idea of how APY works, here's an example based on a real high-yield savings account available today.
This account pays account holders interest every month and compounds interest monthly. If you make a $1,000 deposit at the beginning of the year and earn a simple interest rate of 1.144%, you would have $1,011.44 at the end of the year. But because you earn interest every month, you're going to get a little more interest the second month than the first. Every month, you earn interest on the interest you've previously been credited.
While in this example the difference is only six cents, the difference becomes more significant with higher balances.
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