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What does the annual percentage yield on a deposit account express?
AThe monthly interest, before compounding is applied
BThe monthly interest, including all account fees
CThe yearly interest, before any compounding is applied
DThe yearly interest, including the effects of compounding
Answer & Solution
Correct answer: D. The yearly interest, including the effects of compounding
1. Annual percentage yield is stated as a percentage earned over a year.
2. It already folds in how often the account compounds.
3. So it is a yearly figure that includes the effects of compounding.
4. Monthly framings and pre compounding framings both describe something narrower.
_Source: FDIC Money Smart for Adults (September 2018), Module 5: Your Savings, section Annual Percentage Yield (APY)_
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