What APY Is & How It’s Calculated for Your Business Accounts
This article is part of a larger series on Business Banking.
The annual percentage yield, or APY, is a measure of the amount of money you will earn on a business checking or savings account over one year. The APY will always be slightly higher than the stated interest rate because it compounds on itself. In other words, you can earn interest on previously-earned interest with APY.
If you’re looking for a business checking account that can earn you interest, Bluevine is an excellent choice. You can earn 1.5% APY on qualifying balances of $100,000 or less. Visit Bluevine for more information or to open an account.
APY vs APR:
While APY and annual percentage rate (APR) are both calculations of interest, they serve different purposes. APY tells you how much interest you will earn on a deposit account in a year, and APR tells you how much interest you will pay on a loan or line of credit over a year. In short, APY gives you money earned on deposits, while APR gives you the cost of borrowing money.
APY Formula & How APY Is Calculated
APY is calculated by dividing the stated interest rate in decimal form by the number of compounding periods per year. Then, add one, and take that value to the power of the number of compounding periods. Then, subtract one to get the decimal value of APY, which can then be converted into a percentage.
The APY formula is:
APY = [(1+r/n)n]-1
r = Stated interest rate
n = Number of compounding periods in one year
Example 1
If you have an account that has an interest rate of 4% and the interest compounds monthly, the APY would be calculated as follows:
APY = [(1+r/n)n]-1
APY = [(1+0.04/12)12]-1
APY = [(1.00333)12]-1
APY = 1.0407-1 = 0.04074 or 4.074% APY
Example 2
If you have the same account with a 4% interest rate, but the interest compounds daily, the APY would be calculated as follows:
APY = [(1+r/n)n]-1
APY = [(1+0.04/365)365]-1
APY = [(1.0001096)365]-1
APY = 1.04081-1 = 0.04081 or 4.081% APY
How APY Works in Business Banking
When you’re ready to open a business bank account, regardless of whether it’s a checking or savings account, you should consider finding an account that offers a high APY. This will allow you to earn income on your financial reserves.
Before finding a business account, it’s important to understand exactly how APY in business banking works, what you should consider when choosing an account, and just how much money you will earn from APY in your business bank account.
What a Good APY Is for Your Business Bank Account
What constitutes a good APY will depend on the type of account you’re looking to open. Business checking accounts typically have lower APY than savings accounts. Here are general guidelines for a good APY for specific account types:
- Business checking account: Many business checking accounts don’t offer APY. Any APY higher than 0.5% in a business checking account is a good APY.
- Business savings account: In a savings account, any APY higher than 1% is a good APY. There may be more restrictions on the balances that earn interest, so know that information before opening an account.
- Business money market account: Typically the highest-earning account, an APY of 1.5% or better is a good APY.
Fixed APY vs Variable APY
Before choosing an account, find out whether the account has a fixed or variable APY. Fixed APY means the rate you earn won’t change with market conditions, whereas variable APY means rates can increase or decrease as the market changes. Checking accounts typically have more fixed APY, while savings and money market accounts typically have variable APY rates.
Using an APY Calculator To Determine Your Earnings
Regardless of which type of account you choose, you can calculate how much you’ll earn in a compounding period using our money market calculator below.
To use it, you’ll need to know your daily average balance at the end of the billing (or compounding cycle), your end-of-cycle balance, the APY on the account, and the number of compounding periods in a year. Input those values into our calculator to figure out how much money you have after the interest earnings are added to your end-of-cycle balance.
Banks Offering APY on Business Accounts
The best banks for small business offer APY on both business checking and savings accounts. Listed below are examples of providers offering good APY rates on both types of accounts.
Business Checking Accounts With APY
APY* | Balance Restrictions | Monthly fee | Cash Deposit Fee | ATM Fee | Minimum Opening Deposit | |
|---|---|---|---|---|---|---|
 Business Checking | 1.5% | Qualifying balances of $100,000 or less | None | $4.95/deposit (Green Dot locations) | Free (MoneyPass ATM locations nationwide) | None |
 Innovator Business Checking | 1.5% | None | None | Cash deposits not accepted | Free (Money Pass & Sum network ATMs) | $100 |
 Business Checking | 0.5% | $10,000 or more | None | Cash deposits not accepted | None; reimburses up to $10/month in ATM fees | $100 |
Note: APY rates were accurate at the time of publication. Rates will fluctuate as the Fed raises or lowers interest rates. Visit the provider’s page for the most current APY rates before opening a checking account.
Business Savings Accounts With APY
APY* | Monthly Fee | Transaction Fee | Cash Deposit Fee | ATM Fee | Minimum Opening Deposit & Balance Requirement | |
|---|---|---|---|---|---|---|
 | 2.30% | None | Six free monthly, then $10 each | No cash deposits accepted | Free access to Allpoint ATM network worldwide | No minimum to open, 1 cent to maintain |
 |
| None | Six free transfers/withdrawals monthly, then $25 each | None | Free in MoneyPass ATMs; $1.50 for out-of-network | No minimum balance requirement |
|
| $2 (savings) or $5 (money market account); waivable | Six free monthly, then fees apply | None | Third-party ATM operator fees apply | $100 to open |
Note: APY rates were accurate at the time of publication. Rates will fluctuate as the Fed raises or lowers interest rates. Visit the provider’s page for the most current APY rates before opening a savings account.
Frequently Asked Questions (FAQs)
What is APY for a business account?
APY on a business account works the same way it does on a personal account. It calculates the interest earned by a deposit account over an entire year. It’s higher than the stated interest rate because you can earn interest on previously earned interest.
What is a good APY on a business bank account?
For a business checking account, 0.5% APY or higher would be considered a good APY. On a business savings account, an APY of 1% or higher would be good. For a business money market account, you would want to earn at least 1.5% APY to consider it a good return.
Can a business bank account earn interest?
Your business bank account can earn interest. Interest-earning checking accounts are less common, although providers such as Bluevine and Grasshopper offer solid interest returns on business checking accounts. Higher rates of return will be found on business savings and money market accounts. Live Oak Bank and Prime Alliance Bank have solid returns on business savings, while First Internet Bank has a strong return on its money market account.
Bottom Line
The APY reflects the interest your business bank account will earn over a year. The higher the rate, the more interest you’ll make. It’s essential to know how often the interest is compounded, as accounts compounded daily will earn more interest than accounts compounded monthly or quarterly. Look for an account that offers a strong return on investment to allow your reserves to earn your company money.
