It stands for annual percentage yield; the total income that an investment earns on an annual basis, expressed as a percentage. It is the total earnings/ gains from an investment (e.g., a savings account, a money market accounting, a share of stock, a bond, etc.) which include both income (dividends, interest income, compound interest, etc.) and capital growth (if its value increases time to time).

APY can be derived from another measure of return, namely, the annual percentage rate, APR, as follows:

Where: m denotes the number of periods in a year, APR/m is the periodic rate.

APY is also known as effective annual rate, or real rate of return, of an investment.