Yield vs interest rate: the difference
People use 'interest' and 'yield' as if they were the same. They overlap, but they answer different questions.
The terms
- Interest rate / coupon – what a bond or deposit pays on its face value.
- APY – a deposit's yearly return including compounding.
- Current yield – yearly income divided by today's price.
- Yield to maturity – the total return per year if you buy at today's price and hold to maturity.
- Dividend yield / SEC yield – used for stocks and funds; payouts can change.
Which one to compare
For bonds, yield to maturity reflects the price you pay, not just the coupon. For deposits, use APY. For funds, the SEC yield is a standardized measure. Then look at yields after tax.
One basis for everything
IncomeGrid has 40,000+ investment options screened and shows them on one comparable yield. IncomeGrid ranks every item by yield after tax for where you live: federal, state and each investment type (Treasuries, municipal bonds, corporate bonds, funds, REITs and filed offerings are each taxed differently).
Sources
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