Annual Percentage Yield (APY) is the compound interest earned yearly on investments and savings. Most people prefer higher compound interest, as it will make them more money with higher returns. Compound interest is the interest that is gained on the principal amount and the previously accumulated interest. The more interest is compounded, the higher the APY will be.
Formula and Calculation of Annual Percentage Yield (APY)
Calculating APY is essential for understanding your returns on investments or savings. It involves considering the interest rate and the number of compounding periods per year.
Interest rate: The yearly return on your investment. For example, a 5% return on a $1,000 investment earns $50.
Compounding period: When your earned interest starts earning more interest. Monthly compounding means you'll earn interest on the initial deposit and the accrued interest each month, increasing your balance more significantly over time.
For instance, with a 5% APY compounded annually, you earn $50 on a $1,000 investment. With monthly compounding, you'll earn interest on both the principal and the accrued interest each month, boosting your total returns.
APY vs. APR
APY is similar to the annual percentage rate(APR), but the APR is calculated on loans, that is, the money you have borrowed from the bank or any other financial institution.
Fixed APY vs Variable APY
The APY offered by banks or other financial institutions can be fixed or variable where fixed APY will maintain the same value over time. On the flip side, variable APY will change the value according to the economy. Variable APY depends upon the market conditions and can increase or decrease with time. Most banks and savings account offers variable APY but you can come across some accounts that offer fixed APY.
APY and Risks
In general, investors are typically rewarded with higher yields when they take on greater risk. This principle applies to the APY of checking, savings, and certificates of deposit (CDs). When a consumer holds money in a checking account, they expect immediate access to their funds to cover expenses. Because there is no significant risk, checking accounts often offer the lowest APY. On the other hand, when a consumer places money in a savings account, they might not need immediate access to their funds. Savings accounts generally provide higher APYs due to the slightly greater limitations on fund access.
Compound High-Yield Savings Bonds and APY
Compound high-yield saving bonds are real estate bonds that offer 8.5% fixed APY which means if you invest with these bonds you can earn fixed APY compounded daily resulting in exponential growth in your funds.
Features of Compound Real Estate Bonds:
- High returns: Real estate bonds with an impressive 8.5% APY compounded daily can make you rich faster.
- No lock ins: Flexibility is the key. Want to access your funds? You can withdraw your funds anytime you want to without any penalties or charges.
- Auto-investing: Want to invest money at regular intervals with consistency, you can enable auto-investing where your funds will automatically be deposited into your account as per the frequency of time you choose with the amount you want to invest.
- Round-ups: With this feature, you can make money by investing your spare change automatically into your account. And when your spare change rounds up and becomes $10, it will also start yielding interest on it.
What are you waiting for? Let’s get started with saving your money and earning 8.5% APY!
Bottom Line
The annual percentage yield is the compound interest that you earn on your investments and the higher the APY is, the higher your returns will be. And, Compound real estate bonds offer a fixed 8.5% APY to you ensuring the perfect platform for you to save money for your future.
