What does "APY" mean?

"APY" stands for Annual Percentage Yield. This term is used to describe the amount of interest that will be earned on an investment or deposit over the course of a year, taking into account the effects of compounding. APY is an important measurement because it allows consumers to compare different savings accounts and investment products more effectively, as it reflects the total amount of interest earned based on the compounding frequency.

The correct option highlights the significance of understanding how interest accumulates over time, which can greatly affect savings or investment decisions. Recognizing the concept of APY helps individuals make informed choices about where to allocate their money to maximize returns.