Anonymous
Anonymous asked in Business & FinanceInvesting · 1 decade ago

on a CD account, what's the difference between the "interest rate" and "annual percetage yield"?

What do they mean?

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  • Larry
    Lv 4
    1 decade ago
    Favorite Answer

    Interest rate is the rate of interest that the bank pays on your CD. Annual percentage yield considers the effect of compounding. If the bank pays your interest more than once a year, you will be earning additional interest on your interest earned throughout the year, so your annual percentage yield will be slightly higher than your interest rate. If the bank pays interest once a year, the interest and annual percentage yield are the same.

    Annual percentage yield is actually the better measure of interest because it reflects what you will truly earn from your CD.

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  • 3 years ago

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