APY is the rate of return on a deposit account over a year, accounting for compound interest. Unlike a simple interest rate, APY reflects how often interest is added to the balance, so a higher compounding frequency produces a slightly higher APY.
When comparing savings accounts or CDs, APY is the apples-to-apples figure because it already includes compounding. It's the savings-side counterpart to APR on the borrowing side.
Related terms: FICA · Compound Interest