Dividend Rate vs. APY

The dividend rate is the amount of money a credit union or bank pays you each year based on your deposit, shown as a percentage. The APY (annual percentage yield) includes the effect of compounding, so it shows how much you actually earn in a year — usually higher than the dividend rate if interest is compounded more than once a year.

A dividend rate is the percentage a credit union pays you each year for keeping money in your savings account.

It's basically the credit union version of an interest rate. Since credit unions are owned by their members, they don't technically pay "interest"; they pay "dividends" as a share of profits. But in practice, it works almost the same. You deposit money, and they pay you a percentage of that balance over time. You can learn more about it with our dividend calculator 🇺🇸.

So, if you see something like "Dividend rate: 4.50%", it means the credit union will pay you 4.50% of your average balance over the year before factoring in how often that money is paid out or compounded. The APY handles that part.

APY, or Annual Percentage Yield, shows your total return over a year including compounding. This makes it more accurate than a basic dividend rate or interest rate.

Let's say you're comparing two savings accounts. Both offer a 4.50% rate, but one compounds monthly and the other daily. The APY will be slightly different, and the daily one will earn you a bit more. That's because APY doesn't just look at the rate — it factors in how your money grows as earnings build on top of each other. So when banks or credit unions list an APY, they're showing you the real-world return you can expect in 12 months, assuming you don't touch the money. It's the number to trust when comparing offers.

The dividend rate is just the base annual rate the other side pays you. It doesn’t include how often those dividends are added to your account or how they grow over time. It’s a static number.

APY, on the other hand, is a calculated rate. It includes the base dividend rate plus how frequently those dividends are applied monthly, daily, etc. It accounts for compounding and shows the actual return you’ll earn in a full year.

So while they might look similar at first glance, APY usually is the more useful number. It reflects the way your money really grows, and that's why it's typically higher than the listed dividend rate.

Let’s compare dividend vs APY side by side:

The dividend rate is the starting point. It tells you what percentage the credit union promises to pay over the course of the year. But if they pay out those dividends more than once — and they almost always do — you'll earn more than just that base amount. Why? Because each payout adds to your balance, and the next one is calculated from a higher total. That's compounding in action.

APY captures that growth. It's not just a better-looking number, it's a more realistic one. It tells you "If you deposit this much, and leave it for a year, here's how much you'll actually end up with".

Let's say you're saving for something big like a car, a wedding, or just building an emergency fund. Even a slight difference in APY can make a noticeable impact over time, especially as your balance grows. A higher APY means your money is working harder for you, without you doing anything extra. Whether you're putting your money into a regular savings account or a share certificate at a credit union, these numbers directly affect how much you earn, but in different ways.

Let’s run through a real-world example.

• You deposit $10,000 into a credit union savings account. The account advertises a dividend rate of 4.50%, compounded monthly.
• So each month, you get a portion of that 4.50%, based on your current balance — which is going up slightly each time thanks to the previous month’s dividend. By the end of the year, you’ll have earned around $459.40, and your total balance will be $10,459.40.

Now, here’s the key part: your APY in this case is 4.59%. Not 4.50%. That came from compounding. If you had just looked at the dividend rate, you might’ve expected $450 in earnings. APY shows the full amount, including all those little boosts along the way.

If you're comparing savings accounts — especially from credit unions — the APY is the number to focus on. The dividend rate might be helpful as a reference, but it doesn't tell the whole story like APY does. It shows how your money grows in reality, not just on paper. It's the number that includes every time your balance gets updated, every month or every day, and how that growth compounds over the year.

So next time you're choosing where to save, skip the guesswork. Look at the APY, and if you're curious how much you'll earn on your own deposit, plug it into our APY calculator 🇺🇸 and see the real numbers for yourself.

Is APY the same as dividend rate?

No, APY and dividend rate are not the same. The dividend rate is the base percentage a credit union pays you, while APY includes how often those dividends are compounded, giving you the actual yearly return.

Why is APY higher than the dividend rate?

APY is usually higher because it includes compounding. Each time dividends are added to your balance, your next earnings are calculated from a slightly larger amount.

Should I compare savings accounts using APY or dividend rate?

Always compare using APY. It shows the full return you’ll earn in a year, while the dividend rate leaves out compounding and can be misleading.

This article was written by Dawid Siuda and reviewed by Steven Wooding.