Annual Percentage Yield (APY) and Future Value and Effect function in Excel by Chris Menard

APY vs. Interest Rate. Learn the difference between the Annual Percentage Yield (APY) and the Interest Rate. We will also look at the Future Value function and the Effect Function in Excel. The APY uses both the interest rate and compounding interest. APY takes compounding into account while the interest rate does not. APY is prominently displayed on savings accounts and CD accounts.

Here is an example of APY vs Interest Rate: Bank A is offering a 1.69% interest rate and Bank B is offering a 1.70% interest rate. Which bank do you pick for your savings account? Before you pick Bank B, with the higher rate, you need to know how frequently do they compound. If Bank A compounds daily, and Bank B compounds annually, Bank A is the better bank even with the lower interest rate. That is why we have APY. It allows you to compare apples to apples.

The Future Value function is =FV(E2/E3,E3,,-E1) in my video at 01:50. I was calculating the total I would earn if I deposited $15,000 in a saving account at 1.69% interest, compounded daily for one year. The answer was $15,255.65 (cell E4 in my video).

There are two easy methods for calculating the APY in Excel:
1) Use the APY formula. The formula is =(1+r/n)^n-1 The letter is the interest rate and the letter n is compounding periods. In my video I used the formula =(1+E2/E3)^E3-1 06:14

2) Use Excel's EFFECT function. The EFFECT function has two required arguments. The nominal rate or interest rate and the number of compounding periods per year. In my video, I used =EFFECT(E2,E3) 06:58

Chris Menard's Blog Post on APY vs. Interest Rate
https://chrismenardtraining.com/post/...

Compounding Periods in one year:
Daily is 365
Monthly is 12
Quarterly is 4
Annual is 1
Note: if the number of compounding periods is 1, or annual, then the interest rate the APY will be the same.

The Future Value function is used to calculate the future value of an investment. In my video, I took the $15,000 that was put saving as 1.69% interest for one year, compounded daily, and calculated the interest of $255.65. The function is =FV (rate, nper, pmt, [pv], [type]) There are three required arguments, and two optional arguments for the Future Value function.

#msexcel #annualpercentageyield #microsoftexcel #goalseek #whatifanalysis

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https://chrismenardtraining.teachable...

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