APY stands for Annual Percentage Yield. It is the rate of return you earn on a deposit account over one year, including the effect of compounding — interest earning interest. APY is the number to look at when you want to know what an account will actually pay you.
APY vs. interest rate: the interest rate is the base rate before compounding. The APY folds compounding in, so it is equal to or slightly higher than the interest rate. Because every bank calculates APY the same way, it lets you compare savings accounts and CDs fairly — an apples-to-apples number.
What affects how much interest you earn:
- Your balance — interest is calculated on the money in the account.
- The APY — a higher APY earns more on the same balance.
- Compounding frequency — how often earned interest is added back (daily, monthly). More frequent compounding raises the APY slightly.
- Time — the longer your money stays deposited, the more it compounds.
Fixed vs. variable APY: CDs typically lock in a fixed APY for the term, while savings and money market account APYs can change over time as rates move.
RMO discloses the APY for each deposit product before you open it. Compare options on RMO savings accounts and RMO CDs, and see how compound interest works to understand the growth over time.