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Annual percentage yield (APY)
The APY is commonly used by banks to express the rate of return on balances in interest-bearing deposit accounts. It is an annualized rate that calculates for the effect of compounding interest.
Interest-bearing deposit account
An account at a bank or other financial institution that earns interest on funds deposited. The most common interest-bearing deposit accounts include savings accounts, money market accounts, and certificates of deposits (CDs).
Compounding occurs when deposited money earns interest and the accumulated interest begins earning interest itself. It is the mathematical phenomenon responsible for exponential growth of deposits.