APY is the annual percentage yield on a savings account, certificate of deposit, or money market. It tells you the actual return you will earn in one year, after the effect of compounding.
This guide explains what APY means, the formula behind it, how it differs from APR, and how to use APY to compare savings accounts in 2026.
APY vs Interest Rate
Banks quote two related numbers on savings accounts:
- Interest rate: the simple annual rate, ignoring compounding.
- APY: the effective rate, including compounding.
If a HYSA quotes a 4.90% interest rate compounded daily, the APY is 5.02%. The APY is always the truer number, and U.S. law (Regulation DD) requires banks to disclose APY on all deposit accounts.
The APY Formula
APY = (1 + r/n)^n − 1, where r is the simple interest rate and n is the compounding periods per year.
Most banks compound daily (n = 365). Some compound monthly (n = 12) or quarterly (n = 4). The more frequent the compounding, the higher the APY for the same simple rate.
Why APY Matters
APY is the only fair way to compare savings accounts. Two accounts can have the same simple rate but different APYs because their compounding frequencies differ.
Comparing APY to APY also lets you ignore marketing tricks like quoting rates that compound monthly to make them look closer to a daily-compounding competitor.
APY on Different Products
APY shows up on most deposit-style products:
- High-yield savings accounts: variable APY, can change at any time.
- CDs: fixed APY for the full term.
- Money market accounts: variable APY, often tiered by balance.
- Checking accounts: rare, but a few online banks pay APY on balances above a threshold.
Tracking APY Across Accounts
If you have multiple accounts at different APYs, an app like Monarch Money can pull every account into one dashboard so you can see, at a glance, which balances are working hardest for you and which are sitting at low APYs.
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APY vs APR
APY (annual percentage yield) is for things you earn money on. APR (annual percentage rate) is for things you owe money on.
On a credit card, APR ignores compounding. The card's effective annual interest is closer to the daily-compounded equivalent. That is why paying the balance in full each month, before any interest accrues, saves so much money.
APY and Credit Building
APY does not appear on your credit report and does not directly affect your credit score. But strong saving and credit building work together.
While your savings earn APY, a Firstcard credit builder card reports on-time payments to all three bureaus. Each month you grow APY in savings and history in credit, two parallel tracks that build financial health.
Frequently Asked Questions
What is a good APY in 2026?
Anything above 4.0% APY on a HYSA is competitive in 2026. The very top of the market sits between 4.5% and 5.0% APY, while the national average is closer to 0.40%.
Does APY change?
On variable-rate products like HYSAs and money market accounts, yes. The bank can change the APY at any time, often in response to Federal Reserve moves. CDs lock the APY for the full term.
How is APY interest taxed?
Interest earned on APY-paying accounts is taxed as ordinary income in the year it is credited. The bank sends a 1099-INT for any year you earn $10 or more in interest.
Can APY be negative?
In the U.S., no. Banks must pay APY of at least 0% on deposit accounts. Some foreign banks have offered negative APY at points in the past decade as a monetary policy tool.
