What is apy

APY is a key financial term it pays to understand. APY, a commonly used acronym for annual percentage yield, is the rate earned on an investment in a year, taking into account the effects of compounding interest.

When the APY is higher than the interest rate, however, the interest is being compounded, which means he is earning interest on his accumulating interest. APR refers to the annual interest rate without taking compounding interest into account. APY, on the other hand, does take into account the effects of compounding within a year.

The difference between the two can have important implications for borrowers and investors. When banks or other financial institutions are looking for clients for interest-bearing investments, such as money market accounts and certificates of deposit, it is in their best interests to promote their best APY, not their APR. The more frequent the compounding periods, the higher the APY.

Thus, people who save money in their bank accounts should check how often the money is compounded. Finding the best spot to store your hard-earned cash can feel a bit like dating. You're looking and looking and looking, and eventually end up just wishing a matchmaker would magically appear to set you up with your foreverroommate. So, just like looking for the perfect partner, the best high yield savings account for you will depend a lot on your needs and preferences.

However, there are a few things we think everyone should look for in a high-yield savings account. You should look for a savings account that Pay attention to minimum deposit requirements and monthly service fees aka the fine print -- A lot of savings accounts require a minimum opening deposit and a minimum balance in order to incur interest.

Another common fee is a monthly maintenance charge which can sometimes be hidden if you aren't careful. That's why it's best to opt for a fee-free account. Save that money! Be wary of promotional offers hook, line, and sinker -- Some financial institutions offer a promotional interest rate on their savings accounts. We aren't saying you shouldn't grab a good deal when one is presented, but just make sure you are aware of when that rate will drop, and that you are still comfortable with that number.

Go for local and community banks or credit unions we're biased, but we love local and think you should too -- Many local banks and credit unions offer great interest rates. Not to mention they're convenient, offer better rates, tend to have better customer service, and are actively serving the very community you live in, but, we digress Don't worry - we don't think you should be doing all this money math in your head.

That's why internet calculators exist, right? Here is a basic APY calculator to help you look at the differences between accounts. This can be really helpful if you want to see the value difference between interest-bearing accounts over a period of time like comparing two checking or savings accounts. United States. United Kingdom. Rebecca Lake, Daphne Foreman. Contributor, Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

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Rebecca Lake Contributor. Daphne Foreman Editor. The Forbes Advisor editorial team is independent and objective. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site. This compensation comes from two main sources.