What is APY Rate of Interest?
The APY rate of interest, or Annual Percentage Yield, is a financial term that represents the actual rate of return on an investment or savings account over a year, taking into account the effect of compounding interest. Unlike the nominal interest rate, which only reflects the interest earned on the initial amount invested, the APY rate of interest accounts for the compounding effect, which means that the interest earned in each period is added to the principal, and then interest is calculated on the new total for the next period. This makes the APY rate a more accurate representation of the true return on an investment.
