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Simple Way To Calculate The APY

August 11th, 2008 by Shenron

Have you ever heard of APY? this is also known as an Annual Percentage Yield. APY is one of the crucial thing that you must see before you apply any online bank account. APY is a tool that you could use to evaluating how much your deposit earns you. Why you should look for an APY before you apply any of online bank account? Well, it’s simply because APY is a standardized way of comparing your investments. And as consumer, it’s your job to find the highest APY and put your money in it.

Getting a good APY from your online bank account provider is an important job, since it will compound all of your money. To make a long explanation short, compounding means making earnings from your existing earnings. So, the APY quote will tell you how much money you’re really making by put your money into your online bank account.

If you get more frequent APY, your APY will be much higher. You could ask your online bank account provider how often they compound your money. A daily compound will get you a higher APY that the quarterly APY.

Calculate for the APY could be a troublesome things to do for some people, and they’re right. APY could be a little tricky. But, you could do a simple APY calculation by using Excel Worksheet. Type this function into your excel worksheet.

=POWER((1+(A1/B1)),B1)-1 where A1 is the Rate and B1 is your online bank account provider compounding frequency.

To make it easier, you could put this formula at C1 cell. Put the annual interest rate at the A1 cell in the decimal format, for example, if the annual interest rate is ‘6%’, you’ll type ‘0.06′ in a A1 cell. In a cell B1, you put a compounding frequency, for example, ‘365′ for daily compounding. After you finished filling out the A1 and B1 cells, your APY results at the C1 cell will appear instantly. You could play with the compounding at the B1 cells. Try to change it to quarterly to see how many APY that you could get.

This APY calculation will help you determine whether the online bank account provider gives you the best rate or not. If you feel comfortable with the APY rate that they give to you, you could consider opening a new online bank account at their website.

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