What is annual percentage yield?
Annual percentage yield estimates a one-year return after including compounding, if the rate and conditions stay the same.
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GlossaryAnnual percentage yield, or APY, estimates how much a balance could grow in one year after compounding.
If an app shows 10% APY, that does not mean it pays 10% immediately. It estimates a yearly result if the rate, balance and reward rules remain the same.
A little more technical
APY includes the effect of rewards being added back to the balance. It is different from a simple annual rate that ignores compounding.
Common misunderstanding
APY is not a guarantee. A platform can change the rate, limit the balance that qualifies, require a certain account tier or stop the reward. Crypto rewards also carry platform, token and custody risks.
Source: Investor.gov’s APY definition.