When choosing a CD, you may come across different options with special features. APY is an important metric when considering CD accounts because it provides a more accurate picture of your potential earnings than the nominal or stated interest rate.
What does APY mean on a CD?ĪPY stands for Annual Percentage Yield, and it represents the total interest you can earn on a CD over the course of a year when taking into account compounding. If you withdraw the funds before the maturity date, you may incur an early withdrawal penalty. In return for locking in your money for this specified period, the financial institution typically offers a higher interest rate compared to regular savings accounts. When you open a CD, you agree not to withdraw the funds until the maturity date.
