Saving money can be intimidating.
In 2019, most of us know that putting cash under your mattress is not the best place to keep your money. But, understanding how to compare savings accounts can be difficult. Fortunately, financial search engines like Fiona can help you compare savings accounts available to you in a quick and easy way.
Below, we break down some of the figures you should take note of when comparing savings accounts
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Annual Percentage Yield (APY)
Annual Percentage Yield (APY) is a figure that takes into account the interest rate and the compounding period. APY is the best way to compare savings accounts, as it enables users to compare apples to apples.
The first number in the APY formula. A savings account’s interest rate in very simple terms will be the percentage that represents how much the bank is “paying you” for loaning them your money to store in their possession. Different financial institutions will use compounding time periods, so comparing interest is often not apples to apples.
A compounding period is the amount of time that needs to pass before interest is compounded again. To break it down in a simpler way—let's say your saving’s account has an annual compounding period, and thus is compounded yearly. With that, for the first year—interest is earned on your principal deposit, or rather, all funds deposited into an account via the account holder, rather than what is earned from interest. After that first year, and thus the compounding period, has passed—the interest rate will be applied to both the principal deposits (all funds deposited by the account holder) plus the funds earned from interest in that first compounding period.
Why is APY the “Easy” Number?
APY is calculated utilizing both the interest rate and the compounding period. So rather than looking at each savings account’s interest rate along with the compounding period and doing the math yourself—the APY gives you the ease of comparing accounts without doing that double math each time. It’s the simple and easy calculation of the activeness of a savings account.
Make The Most Of Your Savings Account
It’s important to stay focused on your long-term goals when it comes to savings. It can be exciting to see your savings increase, and, in your excitement, it can be tempting to use some of your savings for a luxury or unnecessary purchases. This type of spending isn’t necessarily the wrong choice—but you should know if it’s right or wrong for your goals. Knowing your own financial goals can help you make sure your financial choices support the life you have, as well as the life you want.
Now that you have a better understanding of what APY is, and what it’s made of—use Fiona to get matched with the savings accounts that best meet your needs, and then compare them by APY!
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