Hello:

I don't know how the bank does things. Banks, in some cases supported by
statute, have played fast and loose with finance rules, in particular
when they report the yield on loan documents.

In finance the effective annual rate is computed by:

EAR = (1+i/j)^j -1

Where i is the nominal annual rate, j is frequency of compounding per year.
(Note, for example, the APR is computed by (i/j)*j, which understates the
true effective rate.)

So for your data the solution would be:

(Put the following in a cell and format as percent:)

=(1+.051/365)^365 -1 = 5.2319%

Pieter Vandenberg

Starlin Dotson wrote:
: Hi,

: What formula can I use to determine the Annual Percentage Yield (APY) for a
: Certificate of Deposit. The interest rate is 5.10% anually with the
: interest added back daily. The bank told me that the interest rate is 5.10%
: and that would be 5.20% APY. How would they know what the APY would be?
: Hope I'm making sense.
: Thanks for the help,
: Starlin