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Canadian Financial, Real Estate and Mortgage Glossary

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Annual Percentage Yield


Synonyms:compounded, interest rate, yearly
Acronyms &
abbreviations:		APY
Filed Under: financial-banking, investments
Tags: banking
 

Definition of annual percentage yield (APY)

annual percentage yield (APY)
1. The percentage disclosed on interest-bearing deposit accounts that reflect the total interest to be earned based on an institution's compounding method, assuming funds remain in the account for a 365-day year. This disclosure is required by Truth in Savings regulations.

Related Terms and Acronyms:

  • annual percentage rate (APR)   A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans. In mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing. There is no APR in an automobile lease; instead, the cost of money is expressed as the money factor.
      ➥  A number used to compare costs associated with mortgage loans and other forms of financing.
  • annual percentage yield earned (APYE)
  • compound interest   Interest that is calculated by adding the interest earned in the current period to the principal and figuring the next period's interest on this "compounded" total amount.
  • compounding method   Used in Bank rate tables. These include: S--Simple interest. A--Compounded annually. H--Compounded semi-annually. Q--Compounded quarterly. M--Compounded monthly. D--Compounded daily.
  • principal and interest (P&I, PI)   Acronym for the elements of a mortgage payment: principal and interest.
  • simple interest (SI)   Interest computed only on the principal balance, without compounding.
  • simple interest loan   A method of allocating the monthly payment between interest and principal. The interest charged is determined by the unpaid principal balance on the loan, the interest rate, and the number of days since the last payment. The rest of the payment goes to the principal. Making early payments or additional payments reduces the loan's principal and cuts the total interest paid over the life of the loan.

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