What is APY?
APY (annual percentage yield) is the rate your money earns in a year, including the effect of compounding.
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APY in one example
If you keep $10,000 in an account that pays 4% APY for a full year, you end the year with $10,400. Because APY already includes compounding, one year’s earnings are simply your balance × the APY.
Examples at 3% and 4% APY
| Balance | 3% APY, one year | 4% APY, one year |
|---|---|---|
| $1,000 | $30 | $40 |
| $10,000 | $300 | $400 |
| $25,000 | $750 | $1,000 |
Examples assume the balance stays the same for the whole year. Try your own number in the APY calculator.
APY vs APR
APR (annual percentage rate) is a yearly rate that does not include compounding. APY does. That’s why accounts that pay you quote APY, and loans and credit cards usually quote APR. When interest compounds more than once a year, the APY is a little higher than the rate it’s based on.
How daily compounding works
With daily compounding, each day’s interest is added to your balance, and the next day’s interest is earned on the new, slightly bigger balance. An interest rate of 3.92% compounded daily works out to about 4% APY. See it year by year in the compound interest calculator.
What do accounts pay today?
The national average interest checking rate is 0.07%, and the average savings rate is 0.37% (FDIC National Rates and Rate Caps, September 2026).
Sources: FRED: ICNDR · FRED: SNDR.
The ACK card
With the ACK card your entire balance earns 3–4% APY, every day. How it works
Questions
What does 4% APY mean?
Your money grows by 4% over a year, compounding included: $10,000 becomes $10,400 if the balance stays the same.
Is APY the same as the interest rate?
Not quite. The interest rate doesn’t include compounding; APY does. When interest compounds more than once a year, APY is slightly higher.
How is APY calculated?
APY = (1 + r/n)^n − 1, where r is the yearly interest rate and n is how many times a year interest compounds.