What is APY and why does it matter?

When it comes to growing your savings, understanding APY — short for Annual Percentage Yield — can be a game changer. APY reflects how much your money can grow over time, factoring in the compounding of interest. The higher the APY, the faster your savings can accumulate, making it an essential concept for anyone looking to make the most of their financial goals.

What is APY?

APY stands for Annual Percentage Yield, and it measures the total amount of interest you earn on an account in a year, including the effects of compounding. Unlike a simple interest rate, APY accounts for how frequently interest is calculated and added to your balance — whether it’s daily, monthly, or quarterly.

This compounding effect can significantly boost your earnings. For example, if you have an account that compounds monthly, you earn interest not only on your original deposit but also on the interest added to it over time. The result? Your savings grow at a faster rate.

This is why financial experts often recommend comparing APYs when choosing a savings or investment account — because it provides a clearer, more accurate picture of your earning potential.

How does APY benefit you?

Think of APY as the engine that powers your savings. The higher the APY, the more efficiently your money grows, whether you’re saving for personal milestones, reinvesting in your business, or building an emergency fund. Even a small difference in APY can make a notable impact over time.

When you factor in compounding, your money grows even faster, as interest is regularly added to your account balance — allowing you to earn interest on both the original amount and the accrued interest. For example, imagine depositing $10,000 into an account with a 3.80% APY that compounds monthly. In one year, you’d earn approximately $386.69 in interest, compared to a flat $380 without compounding. It may seem like a small difference, but over time — and with higher balances — it can really add up. 

Why a higher APY matters

A higher APY has the power to amplify your savings, particularly for larger balances or long-term goals. Let’s say you deposit $15,000 into an account with a 3.80% APY that compounds monthly. In one year, your earnings would total approximately $580.03. Compare that to a 1.50% APY account, where you’d earn only about $226.55.

That difference can add up quickly over time, making higher-APY accounts a smart choice for maximizing your returns. Choosing an account with a competitive APY allows you to put your money to work, ensuring it grows as effectively as possible.

The bottom line

Understanding APY is the first step to making smarter decisions for your savings. By prioritizing accounts with competitive APYs, you can harness the power of compounding and watch your savings grow over time. Whether you’re managing personal finances or business reserves, a higher APY ensures your hard-earned money isn’t just sitting still — it’s actively contributing to your financial success.

Put your savings to work with UBT’s Value Edge Money Market account

Ready to see the benefits of APY in action? UBT’s Value Edge Money Market Account offers a competitive APY to help your savings grow while keeping your money accessible for life’s needs. Right now, you or your business can earn up to a 3.80 APY* for 12 months on balances of $10,000 and up (or 0.85% APY* on balances under $10,000) when you open a new Value Edge Money Market account with at least $10,000 in new money. It’s banking you can feel good about. Stop into your nearest branch to get started today or click here to learn more!