Definition
Annual percentage yield expresses an annualized return that incorporates compounding, allowing deposit or reward products with different compounding schedules to be compared.
In market context
APY converts a periodic rate into the return that would result over one year if the stated rate and compounding assumptions remained unchanged. A displayed APY is not the same as a guaranteed cash amount when rates are variable, rewards are paid in a volatile asset, or fees and early-exit terms apply. The product terms should identify the calculation basis, crediting frequency, lock period, and whether the rate can change.
Risk context
An annualized projection can overstate the outcome if a variable rate falls, rewards are not compounded, or the underlying asset loses value.
Source
Use the primary source for fuller regulatory or market context.