What Is an APY, and How Does It Impact My Investment?

When you invest on Percent, your investment has a fixed rate of return. This is called the Annual Percentage Yield, or APY, and it determines a fixed percentage of interest that an investment yields in a year.

When you invest on the stock market, however, you could see an increase in value of your stocks, known as gains. You could also see a decrease in value, or a loss. How much a stock gains or loses is based on numerous variables ultimately linked to supply and demand, but you won’t know what your loss or gain rate is until near the end of your transaction.

APY should sound familiar. Savings accounts, money market accounts, certificates of deposit (or CDs), and other assets have set APYs, allowing you to know what you’re getting into before you invest. But why are APYs important, and how do they work differently from stocks?

APYs let you know what kind of return to expect.

If you put $100 in an investment or account with a 1% APY on January 1st, you will end that year with $101, making around .083% in interest per month. It’s really that simple: just take your initial investment, factor in the APY, and you can calculate how much interest that investment or account will accrue in a year (not including taxes and fees).

Similarly, with investments on Percent, a note’s APY determines how much interest you will accrue over the term of that note. If you invest $10,000 in a note with an APY of 10%, you will receive $11,000 after 12 months, presuming you reinvested your principal and interest at every opportunity. There is always the risk of loss in an investment, but doing proper research and due diligence can help mitigate said risk.

How does compounding interest factor in?

With interest-accruing investments, your interest can compound year after year. For instance, if you invest $10,000 in a note with a 24 month term and an APY of 10% that compounds annually, you will end up with $12,100.

Here’s how to break that down:

For the first year, you will earn $1,000 in interest at a rate of 10% APY on a $10,000 investment. This gives you $11,000.

For the second year, you will earn $1,100 in interest at a rate of 10% APY on the initial $10,000 investment plus the $1,000 accrued in interest. This gives you $12,100 by the end of the note’s term, allowing your interest to earn interest.

How can I earn interest on Percent?

Percent offers short-term, interest-accruing investments for accredited investors, allowing you to earn as much as 10% APY in as little as one month. To learn more about this and start investing, click the button below.

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