Sign In Sign Up

What Is APY, and How Does It Impact My Investment?

When you invest on Percent, most of your investments will have an expected fixed rate of return1. The rate we use to reference the expected interest of your investments is the Annual Percentage Yield, or APY. This rate determines a fixed percentage of interest that an investment yields in a year. 

APY should sound familiar. Savings accounts, money market accounts, certificates of deposit (CDs), and other assets have set APYs, allowing you to know what you’re getting into, and what to expect with your returns, before you invest. But why is APY important, and how does it work differently from stocks?

When you invest in the stock market, you could see an increase in value of your stocks, known as capital gains. You could also see a decrease in value, or a capital loss. How much a stock gains or loses is based on several factors ultimately linked to supply and demand, but you won’t know what your percentage loss or gain is until you ultimately decide to sell your shares.

APYs let you know what return through interest you can expect.

On Percent, an investment’s APY determines how much interest you will accrue over the term of that note. If you invest $10,000 in a note with an APY of 10%, you will receive $11,000 after 12 months, presuming you reinvested any principal repaid, and any interest received every month at that same rate (before taxes and any applicable fees). There is always the risk of loss in an investment, but conducting proper research and due diligence can help mitigate this risk.

How much do I earn in interest if I do not reinvest my interest distributions?

The APY assumes compounding and a full year maturity. Because interest distributions across our investment opportunities tend to occur monthly, and these distributions are not automatically reinvested, they do not compound. Therefore, investors receive the monthly Holding Period Rate, or HPR, equivalent (for deals that make monthly interest distributions). For example, in a deal with a 19% APY, the Holding Period Rate for 1 month is calculated using the following equation:

1-month HPR:

= [[(1+0.19)^(1/12)]-1] x 100 = 1.4602%.

If this investment has a term of 9 months, you can calculate the expected returns for this term using the following equation:

9-month HPR:

= [1-month HPR] x 9 = 1.4602% x 9 = 13.1418%

If you would like to calculate the expected annual return on this investment (or APR, Annual Percentage Rate), knowing that your interest will not be automatically reinvested, the following equation would apply:


= [1-month HPR] x 12 = 1.4602% x 12 = 17.5224%

Essentially, a deal with a 19.0% APY, assuming monthly distributions of interest that are not reinvested, has a ~17.5% APR.

How can I earn interest on Percent?

Percent offers short-term, interest-accruing investments for accredited investors, allowing you to potentially earn as much as 25% APY in deals as short as 3 months. To learn more and start investing, join Percent today.

1 Currently, the two types of investment opportunities on Percent that do not have an expected fixed rate of return assigned at launch are 1) Percent Blended Notes, and 2) Limited Partnership interests.

Recommended Articles

Sign up and make your first investment

Our diverse set of investment offerings target annualized returns of up to 20%.