APY (Annual Percentage Yield)
Definition
The actual percentage return you'll earn on savings or investments in a year, accounting for compound interest. Unlike APR (which is a cost), APY is a benefit. If a savings account offers 4.5% APY, you're earning that rate plus compound interest on your earnings.
Why It Matters
APY is what matters for your savings accounts and investments. It shows the real return you're getting. The difference between 4% and 5% APY might seem small, but over years it compounds into real money.
Example
A high-yield savings account at 4.5% APY on $10,000 earns about $450 in year one. But because of compounding, year two you earn ~$468. After 10 years, you'd have ~$14,794 without adding anything else.