I talked about investing money and choosing good savings a/c system with better APY in my previous post. But it seems that another short and comprehensive discussion will be good on APY.
APY stands for ‘Anangu Pitjantjatjara Yankunytjatjara’ (a remote Australian Aboriginal community in South Australia).
Hey, just kidding. 
Of course APY does not mean that but ‘Annual Percentage Yield‘.
Jokes apart, APY, actually, is a tool for evaluating how much a deposit earns you. It takes into account the effect of compounding. It uses different compounding terms (daily, monthly, annually, or other). And the calculation (I have already shown in my previous post) is like this :
APY=POWER((1+(A/B)),B)-1, where A is the interest Rate and B is compounding frequency.
I have created a pictorial view of APY-formula.
I know you may be thinking ‘I already know this’. Yes, you may know already. I am just posting more elaborately for those who need more clarification.
By compounding frequency I meant number of compounding periods per year.
So higher the compound period, higher is the APY. And more APY means you are really making more on your money. As this calculation is compound, you are earning on your earning. See? Now you know why I was always concentrating on getting higher APY.
Say 3 CD’s pay the same interest rate, pick the one that pays out interest most often (i.e. ‘B’ is higher). Then, you can reinvest your interest payments and start earning interest on that payment.
Everybody loves earning more money.
I think I have given a little concept of APY.
See you soon.
