What does APY stand for in relation to savings interest rates?

APY stands for Annual Percentage Yield, which is a crucial term in the context of savings accounts and other interest-bearing accounts. It represents the total amount of interest income earned on an investment over one year, expressed as a percentage of the principal amount. This measure takes into account the effect of compounding interest, meaning that it shows how much money you can expect to earn in a year based on the interest rate and the frequency of compounding.

The significance of using APY is that it allows consumers to compare the actual earnings from different savings accounts or investment products, as it reflects not just the nominal interest rate but also how often the interest is compounded (daily, monthly, quarterly, etc.). This is why understanding APY is essential for anyone looking to maximize their savings.

The other options do not accurately convey the concept related to savings interest rates. Therefore, focusing on the correct interpretation of Annual Percentage Yield is vital for understanding how savings accounts work and making informed financial decisions.