What is APY and how is it different from interest rate?
APY (Annual Percentage Yield) is your real one-year return, including compound interest. The interest rate is the base rate before compounding, so APY is always equal to or higher than the interest rate. When comparing savings, CDs, or money markets, always compare by APY.
APY (Annual Percentage Yield) tells you how much a deposit actually earns in one year once compounding is included. The interest rate is the simple base rate before compounding. Because interest earns interest, APY is always ≥ the stated interest rate.
The formula
APY = (1 + r / n)n − 1, where r is the annual interest rate and n is the number of compounding periods per year.
Worked example
A savings account with a 5.00% interest rate compounded monthly:
| Compounding | Interest rate | APY |
|---|---|---|
| Annually | 5.00% | 5.00% |
| Monthly | 5.00% | 5.12% |
| Daily | 5.00% | 5.13% |
Same headline rate, different real return — which is why APY is the only fair way to compare accounts. Two banks can advertise "5.00%" and pay you different amounts.
Why it matters in Kansas City
Every rate on KCBanks is shown as APY so you're comparing apples to apples across banks and credit unions. See today's best Kansas City savings APYs and CD rates, or read the related APY vs interest rate breakdown.