# Interesting APY vs APR

SuperUser ✭✭✭✭✭
edited December 5

might have to do some calculations to see how things look on a yearly basis ….
Thoughts -

QWin Deluxe Subscription - sticking with R47.15 - Win10

• Member ✭✭✭✭

What about it? Are you trying to understand APY vs APR?

Or are you just showing that the CD rates are pretty good?

For CDs normally you don't talk about APR, instead it is APY vs yearly interest rate (but I have seen APR used to mean this same thing as yearly interest rate). When talking about APR and APY with a loan APR is just the interest, whereas APY includes any fees.

APY opposed to the yearly interest rate makes the calculation easy if you want to know what you will get in a year. APY is calculating it with the compounded interest figured in, the yearly interest rate is without it calculated in.

If you put \$1,000 in a 5.00% APY account, you can literally just do 1000 * 1.05 (1050) to see how much you will have in a year.

On the other hand, if you take you money out in 6 months it wouldn't be accurate to assume that the interest you will get will be exactly half of the 50 you would have got for the year. Because even though they stated this as APY they are definitely going to calculate it using the monthly interest rate for each month you hold that CD. Which is going to make that 10-month CD hard to calculate quickly without the right formula or a special calculator doing that formula.

The yearly interest rate if stated will always be lower than the APY number because it is the used, before compounding is taking into account. For instance, here is the information on my high yield savings account a Synchrony:

Interest Rate 4.640%

Current APY 4.75%

There are formulas/calculators for this but the simple way of doing the interest rate calculation is by month if the interest is being paid by month. Say you have the same as above, but with 5.00% yearly interest rate.

First month:

\$1,000 + \$1,000 * (.05 / 12) = 1004.166666666667 (first month would be equal to the 50 / 12)

Second month:

1004.166666666667 + 1004.166666666667 * (.05 /12) = 1008.350694444445 (but on the second month: 8.350694444445 vs 8.333333333334)

And so on,

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• SuperUser ✭✭✭✭✭
edited November 5

Yeah - I just hadn't thought about the sub-year offerings …. like the 10 month at 5.30% APY -
So you do the simple math for the year, then get the monthly - then take 10 months worth - for the ending amount -

\$1000 @ 5.30% = \$53yr = \$4.42mo x 10 = \$44.20 for the 10 month period
\$1000 @ 5.00% = \$50yr = \$4.20mo x 12 = \$50.00 for the 12 month period

More of a discussion for over on Bogleheads -
do you take the little extra now and then decide what to do for the remaining 2 months -
or - guessing rates will stay same or go down - and therefore go for the slightly longer term but slightly lower rate -

QWin Deluxe Subscription - sticking with R47.15 - Win10

• SuperUser ✭✭✭✭✭

The interesting thing is that the yield curve is inverted and has been for a while.

This sometimes, but not always, signals a recession is coming. We are officially in a correction now…

Quicken user since version 2 for DOS, now using QWin Premier Subscription (US) on Win10 Pro.
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