APY Versus Interest Rate
CDs, or certificates of deposit, are a great way to invest your money. They offer higher interest rates than savings accounts and give you a way to more safely invest than stock options. You have the option of choosing how long you want your money to be invested, and a little comparative shopping can help you find the best CD rates. When you look into buying a CD using Honolulu Banking Rates, you will see CD interest rates shown in two different ways.
APY and Interest Rate
Most CD rates pages show both APY and interest rate for a CD. APY stands for Annual Percentage Yield, and it takes into account the fact that interest will be compounding over time. These rates are using slightly higher than interest rates by 0.01% or 0.02%. It usually reflects compounding for a 365 day period, but you should always read the fine print below each rates table. Any statements you receive should include an updated APY to show you how much compounded interest you earn over time.
Compounded Interest
An interest rate does not reflect compounded interest. If you took the interest out of your account each month, you would make only the interest rate on your investment. Finally, the last term you should know is APR or Annual Percentage Rate is a term used for loans that does not take compound interest into account and therefore makes your loan look less expensive.
Hopefully, now that you understand these differences, you will be confident enough to invest in your own CDs. If you are looking for the best CD rates for your area, Honolulu Banking Rates can help you find them.
