APY (Annual Percentage Yield)
The annualized rate of return on an investment taking into account the effect of compounding interest.
In-Depth Explanation
Because APY incorporates periodic compounding (daily, weekly, or monthly), it reflects a higher effective return than simple APR over a one-year horizon.
Practical Market Example
Real-World Application
An 8% APR compounded monthly yields an effective 8.30% APY.