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When discussing interest rates, what is yield?
This is a great question, especially if you’re ready to start saving money and want to know the best way to help your money grow.
Yield is the return on an investment – your profit. Yield can be expressed as a dollar amount or percentage. The interest rate tells us how much profit we will make, which is always expressed as a percentage. Basically, the higher the interest rate on an investment, the greater the profit or yield.
Let’s say you decide to deposit $300 into a savings account and you find two banks that are offering a 1% interest rate (APR) on their accounts. However, when you look a little closer you see one of the accounts has an APY of 1% and the other has an APY of 1.2%. You may have wondered what an APY is and why one is higher than the other.
APY stands for annual percentage yield. When comparing savings accounts it is important to look at the annual percentage yield (APY), not the annual percentage rate (APR). The APY includes your compounded interest and is an accurate reflection of how much interest your account will earn. If the APR and the APY are the same that means interest is compounded annually.
The important thing to remember is that the higher the APY on an investment, the greater the profit or yield. So shop for the highest APY you can find.
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