How savings APY and purchasing power work
APY is an effective annual yield. With APY g as a decimal, monthly rate i = (1 + g)^(1/12) − 1. Starting balance P and month-end deposit C over n months give balance = P(1 + i)^n + C × ((1 + i)^n − 1) / i. At zero APY the balance is P + nC. APY is not a nominal loan APR and is not simply divided by 12.
Existing savings grow before each month-end contribution. Total contributed includes the starting balance and all deposits. Hypothetical interest = nominal balance − total contributed. Purchasing power after y years = nominal balance / (1 + annual inflation)^y. Inflation has no effect on nominal interest; at 0% inflation, purchasing power equals the nominal balance.
Worked illustration: starting balance 10,000, no additional deposits, 4% effective APY, and one year gives a nominal balance of 10,400 and hypothetical interest of 400. With 3% inflation, purchasing power is about 10,097.09 in today’s money. With 0% APY, starting balance 10,000 and deposits of 500 each month for five years give 40,000 and no interest.
Educational fixed-APY scenario only, not financial advice, a bank quote, or a promise of interest. Actual savings account rates can change. No bank or account recommendations, rate fetching, deposit-insurance claims, taxes, fees, minimum balances, promotional periods, or withdrawal rules. Inflation is a fixed user-supplied assumption rather than a forecast.