Sunday, January 01, 2006


Emigrant Direct APY question

Can anyone explain APY to me? I opened an American Dream account in November with Emigrant Direct for the 4% interest rate. My first statement said the interest was only 3.92% APY, pretty close to 4% but not quite there. I sent an email to customer service but never received a response. I've just received my December statement and the APY is 3.96%, still not quite 4%. Shouldn't the APY be 4% or am I not understanding how this works?


Blogger Nick said...

APR is the rate you earn without taking compounding interest into account. Basically, you earn a part of your 4% annual interest every month, and as soon as that interest gets deposited into your account, it starts earning interest--that's where the compounding comes in. APY takes into account that fact that you'll earn interest on the interest you make earlier in the year. Since EmigrantDirect compounds monthly, it makes sense that the APR is 3.92%. If you take into account the interest earned on your interest, that rate comes out to an even 4.0%, and that's the APY. I have no idea why they're saying that your APY is 3.96%. You could always sit down and do the calculations by hand to make sure they're not cheating you out of money, but I've never seen that happen with anyone's ED accounts.

8:49 AM  
Blogger kassy said...

Thanks Nick, that helps a lot. I've never been clear on the difference between APR & APY before.

1:45 PM  

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