How to Tell if a Savings Account Really Delivers What It Promises: Understanding APY vs. Nominal Interest
When a bank advertises a savings account at “4% interest,” that 4% is almost never what you actually earn on your money over a year. Or rather: it depends on what kind of interest rate that 4% is.
The confusion between the nominal interest rate and the annual percentage yield (APY) is one of the most common pitfalls in personal finance, and the one banks exploit the most in their advertising. Understanding the difference doesn’t require an economics degree; it just takes someone explaining it clearly once.