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Truity Credit Union Blog > February 2024 > Compound Interest

Compound Interest

  • 2/16/2024

First, we need to understand what interest does for your account.

APY stands for Annual Percentage Yield, and it is the amount of return on your savings that is based on interest for one year’s time. That means if you put money in your savings account, the credit union gives a percentage of that money back to you in the form of dividends.

When you deposit money into your savings account, it’s as if the credit union is borrowing money from you. After all, you trust us with your assets, so we pay you dividends. The more money you put into your account, the more we give back. So, when putting money into a savings account, you should look at a higher dividend rate. High yield savings accounts have higher dividend rates, which allow you to earn more interest as your savings account balance increases. That is why it’s important to look for savings accounts with a high percentage yield, like our Name It Save It account

Compound interest is when you earn dividends on the amount you’ve earned from interest in addition to the funds you’ve deposited.

Think of it like this:

If you have $1,000 in savings with a dividend rate of 5% at the beginning of the year, it will grow to $1,050 by the end of the year.

But wait, there’s more!

A savings account that compounds its earnings will gain interest on the earnings too! That means the $50 that you earn from interest will also grow at a 5% rate. At Truity your dividends are deposited every month.

So, you’ll turn that $1,000 into $1,050 which will grow into $1,102.50! It’s like getting paid for keeping your money at Truity!

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