Annual Percentage Yield (APY)

Annual percentage yield, or APY, is the effective yearly return on money once compounding is included. A 12 percent nominal rate compounded monthly produces an APY of about 12.68 percent, because each month's interest itself earns interest for the rest of the year.

Why it matters

APY is the honest number for savers, which is why US banks are required to disclose it on deposit accounts under the Truth in Savings Act. It allows direct comparison between accounts that compound daily, monthly, or quarterly. The same arithmetic that flatters savings compounds against borrowers, and it is the engine of long-term investing: money doubling roughly every 72 divided by the annual rate in years, per the familiar rule of thumb.

During the crypto lending boom, platforms advertised double-digit APYs on deposits. Several of the largest, including Celsius and BlockFi, failed in 2022, demonstrating that an APY is only as good as the balance sheet paying it.

In the gold vs bitcoin debate

Gold and bitcoin are both zero-yield assets in their native form, a point critics of each raise constantly. Their holders' response is that APY on fiat savings must be measured against monetary debasement, and that a scarce asset's appreciation is its compensation. Chasing APY on either asset means handing it to a borrower, trading away the very independence from counterparties that motivated the purchase.