Two numbers, one account — and they are not the same. Knowing how the interest rate and the APY differ is the simplest way to compare deposit accounts fairly and see what your money will really earn.
When you look at a savings account, a CD, or a money market account, you will often see two figures: an interest rate and an APY. They describe the same account, but they are not interchangeable, and the difference matters when you are deciding where to keep your money.
The interest rate is the base rate the bank pays on your balance — the raw percentage before anything else is taken into account. The APY, or annual percentage yield, is the rate including the effect of compounding over a full year. In other words, APY answers the question you actually care about: if I leave my money here for a year, how much will it really earn?
Because APY folds compounding into one number, it is the apples-to-apples figure for comparing deposit accounts. RMO Bank deposit accounts are FDIC-insured up to applicable limits — standard coverage is $250,000 per depositor, per insured bank, per ownership category — and RMO publishes current APYs at /resources/rates.
Compounding is interest earning interest. When a bank pays interest, that interest is added to your balance — and from then on, the slightly larger balance earns interest too. How often the bank does this is the compounding frequency: daily, monthly, quarterly, or annually.
Here is a small, generic example to show the effect. Imagine $10,000 at a 4% interest rate:
These figures are illustrative, not RMO rates — they simply show the pattern. Same interest rate, three different APYs, three different amounts of money. That is exactly why a single interest rate cannot tell you what an account will pay: you also need to know how often it compounds. APY does that work for you.
Once you know what APY represents, comparing deposit accounts becomes straightforward:
The rule of thumb is simple: the interest rate tells you the base rate, but the APY tells you what you will earn. When you are choosing where to grow your money, compare on APY.
The interest rate is the base rate a bank pays on your balance. APY, or annual percentage yield, is the rate including the effect of compounding over a full year. APY is always equal to or higher than the interest rate, and it reflects what you actually earn, so it is the better number to compare.
APY is higher because of compounding. When interest is paid more often than once a year, each payment is added to your balance and then earns interest itself. APY rolls that effect into a single annual figure. If interest only compounded once a year, the APY and the interest rate would be the same.
Compare by APY. Because APY already includes compounding frequency, it puts every account on the same footing. Two accounts can advertise the same interest rate but pay different amounts if one compounds monthly and the other daily. APY removes that guesswork.
Deposit rates change over time, so RMO publishes current APYs on its rates page at /resources/rates and on each product page. Check there for the latest APY on RMO savings accounts, money market accounts, and CDs before you open or compare an account.
Now that the numbers make sense, these guides help you put them to work:
