Annual percentage yield (APY) is a normalized representation of an interest rate, based on a compounding period of one year.
APY figures allow a reasonable, single-point comparison of different offerings with varying compounding schedules.
[1] One common[citation needed][2] mathematical definition of APY uses this effective interest rate formula, but the precise usage may depend on local laws.
For financial institutions in the United States, the calculation of the APY and the related annual percentage yield earned are regulated by the FDIC Truth in Savings Act of 1991:[3] ANNUAL PERCENTAGE YIELD.
— The term "annual percentage yield" means the total amount of interest that would be received on a $100 deposit, based on the annual rate of simple interest and the frequency of compounding for a 365-day period, expressed as a percentage calculated by a method which shall be prescribed by the Board in regulations.The calculation method is defined as[4] Algebraically, this is equivalent to Here