A savings example displays an interest rate beside an annual percentage yield. The numbers are close enough to look interchangeable, yet their labels matter. Start by identifying what each percentage measures before using either in a calculation.
Read the annual measure in context
The US Consumer Financial Protection Bureau’s APY calculation material describes annual percentage yield using the relationship between principal and interest under the specified calculation rules. Compounding is part of why an annual yield can differ from a stated nominal annual rate.
This is a reading exercise about terminology, not a comparison of currently available accounts. Product conditions, fees and applicable rules require their own examination.
Work through a deliberately simple illustration
Imagine 100 units earning a nominal 4% annual rate, with 2% credited at each half-year and the balance left untouched. Under those simplified assumptions, the first period ends at 102. The second adds 2.04, producing 104.04: a 4.04% increase over the year.
The example omits fees, taxes, changing rates and other account conditions. It illustrates compounding; it does not predict what any actual account will pay.
Keep assumptions beside the percentage
When copying an example from a book, retain its period, compounding convention and assumptions about deposits or withdrawals. A percentage without those details may invite a comparison the author did not intend.
Our introduction to following compound interest over two years helps with the arithmetic. Here, the useful habit is to preserve the label. If one figure is an interest rate and the other an annual yield, explain that difference before deciding which number belongs in your notes.