All About Annual Percentage Yield and how Milli Pays Interest 

by | Oct 10, 2023 | Savings

If you’re using any savings account, you’re accruing interest on the money in the account. Let’s dig into Annual Percentage Yield (APY) and how Milli pays interest on your Savings Account and Jars. 

What is APY?

APY is a standardized way to represent the total interest that a savings account earns in a year, factoring in the compound interest that gets paid during that time span. 

Compound interest means that the interest you earn on your initial deposit (or principal) is added to your account balance periodically. Then, the new interest you’ll earn includes a higher balance from the interest you were already paid.  Another important aspect of earning interest is how often the interest is compounded. Common compounding frequencies are daily, monthly, quarterly, semi-annually, or annually. The more frequent the compounding, the higher the effective interest rate will be. 

That means APY is the real rate of return on the initial deposit, because it takes into account the interest you’ll earn even more interest on.

However, you’ll have to keep in mind that any APY projection assumes two things: 

  • you don’t add or withdraw any money during the time period you set 
  • the interest rate remains constant throughout the time period you set 

If you add money, the real return will go up because you’ll be earning more interest on a higher balance. If you withdraw money, the real return will be less than projected because there was less of a balance to have interest accrue on. 

But in reality, the APY can change on your account. As the Federal Reserve changes interest rates, banks may choose to follow suit and change the APY they offer on their savings accounts. And, some savings accounts may have variable interest rates, where an APY is only valid for a certain balance amount, whether it’s a limit or a minimum amount. Some banks will have promotional periods with different rates for their accounts. Whenever signing up for a new account or projecting how much you’ll earn in interest, it’s essential to consider the terms and conditions of your specific savings account.

Screenshot of a Milli Jar for a New car showing interest payments of $8.33 on June 18 and $4.45 on May 18. The interest paid showcases how a higher annual percentage yield can help you reach your savings goals faster.
A Milli Jar for a new car showing interest

How does Milli pay Interest?

At Milli, interest begins to accrue on the business day we receive credit for the deposit. So, if you transfer money within the Milli app from another financial institution, you’ll start accruing interest even if you can’t see the balance in your Milli account or use it yet. 

It takes a few days for money to transfer between financial institutions – usually three to ten business days. You can often expedite this by directly sending money from the other financial institution rather than initiating the transfer within the Milli app. 

We calculate interest using the daily balance method. This method applies a daily periodic rate to the principal balance in the account at end of each day. Interest is compounded daily and credited to your account monthly. If you close your Milli account before the next interest payment is credited, you will receive the accrued interest until the date closed. 

Start Saving with Milli

We hope this was a helpful guide on APY and accruing interest!  

Looking for a bank with a competitive APY? Look no further. If you’re ready to get saving with Milli, download the app from the App Store or Google Play today!  

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