What Is APY and Why Does It Matter When Comparing Bank Accounts?

Updated July 3, 2026. Reviewed July 3, 2026. Rates verified from each bank.

Written by Daniel Levy, CFP® — Certified Financial Planner & Senior Editor

Daniel Levy is a Certified Financial Planner (CFP®) with 12 years of experience in personal banking and consumer finance. He previously worked at JPMorgan Chase and holds a B.S. in Finance from NYU Stern School of Business. LinkedIn →

Reviewed by Sarah Kim — Editorial Reviewer

Sarah Kim reviews rate accuracy, FDIC references, fee disclosures, and account-term language before publication.

APY (Annual Percentage Yield) is the standardized metric that BanksYouPick uses to rank every savings account, CD, and checking account. APY accounts for compound interest — something the nominal interest rate alone does not capture. Understanding APY is essential for making accurate comparisons between bank accounts.

What is the formula for calculating APY?

APY = (1 + r/n)^n - 1, where r is the nominal annual interest rate and n is the number of compounding periods per year. For daily compounding (n=365) at a 4.00% nominal rate: APY = (1 + 0.04/365)^365 - 1 = 4.08%. This means daily compounding at 4.00% nominal produces a 4.08% effective yield. BanksYouPick notes that most high-yield savings accounts compound daily, which is the most favorable frequency for savers.

How much more do you earn with daily vs monthly compounding?

On a $10,000 deposit at 4.00% nominal rate: daily compounding earns $408.08 per year, monthly compounding earns $407.42, quarterly compounding earns $406.04. The difference is small on $10,000 but grows with larger balances and longer time horizons. BanksYouPick always displays the actual APY (which already includes the compound effect) for accurate comparison.

Frequently asked questions about APY

What does APY stand for?

APY stands for Annual Percentage Yield — the total interest earned over one year including compound interest.

How is APY different from interest rate?

The nominal rate excludes compounding. APY includes it. Two accounts with the same nominal rate but different compound frequencies produce different APYs. BanksYouPick always compares APY to APY.

What is the highest savings APY right now?

As of July 3, 2026, the highest savings APY tracked by BanksYouPick is 4.00%, offered by SoFi (with direct deposit) and Barclays.