What Is APY, and Why It Matters More Than the Interest Rate

The interest rate is the simple, stated percentage a bank pays. APY is what that rate actually becomes once compounding is factored in — interest earning interest, typically compounded daily or monthly and credited to your account. Because of that, APY is always equal to or higher than the plain interest rate on the same account, and it's the only number that lets you compare two accounts on equal footing.

Banks are required to disclose APY, not just the interest rate, which is why it's the figure we use throughout this site — including in our /best/savings-accounts ranking.

In the group of banks we track, savings APYs currently span from about 0.01% up to 4.10%. On a $5,000 balance held for a year, that's the difference between roughly 50 cents in interest and about $200. The accounts with the lowest APYs aren't doing anything wrong — many are legacy savings products at large branch-network banks that haven't been repriced to compete with online-only accounts, which carry less overhead.

APY on a standard savings account is variable, meaning the bank can change it at any time without advance notice — the rate advertised today isn't a promise for next year. It's also worth checking whether the rate applies to your full balance or only up to a certain threshold, since some accounts pay a lower rate above a cap. Every account page on this site lists the source and verification date for its APY figure so you can confirm it's still current before you open an account.