Definition
The yearly rate a deposit account earns, including the effect of compounding, so you can compare savings accounts and CDs fairly.
What it means
Annual percentage yield, or APY, shows how much a deposit account earns in one year, counting interest that is added and then earns more interest (compounding). Under the federal Truth in Savings Act and the CFPB's Regulation DD, banks must show the APY when they advertise a rate on a deposit account, which makes accounts easier to compare. APY is different from APR: APY is used for money you save, while APR is used for money you borrow. A higher APY means more interest, but many accounts have variable rates that can change at any time, and some advertised rates apply only to part of a balance or only for a promotional period. Always read the account terms to see how long the rate lasts and whether fees could cancel out the interest.
Example
An account paying 3.94% interest compounded daily has an APY of about 4.02%, so $1,000 left for one year grows to about $1,040.20.
Illustrative numbers only. Your situation will differ.