Annual Percentage Yield (APY) is the rate of return earned in one year taking into account the effect of compounding interest. The effect of compounding allows for the earning interest on interest.

The APY is calculated using a standardized formula that takes into account the frequency of compounding.

The APY is typically used to compare different investment products and help investors decide which ones will earn the most interest over a given period of time.

It is important to note that the APY is not the same as the interest rate, which is a simpler measure of the cost of borrowing money or the return on an investment.