What is APY (Annual Percentage Yield)?

APY stands for Annual Percentage Yield. It's the interest rate a bank pays you on your savings, expressed as a yearly percentage of your balance. If you have $1,000 in an account with a 5% APY, you'd earn roughly $50 over the course of a year.

The reason it's called "yield" instead of just "rate" is because it accounts for compounding. Compounding is when you earn interest on top of interest you've already earned. Most savings accounts compound daily or monthly, which means your balance grows slightly faster than a simple yearly rate would suggest. The APY rolls all of that into one number so you can compare accounts fairly.

For bank bonuses, APY matters most when you're putting money into a high-yield savings account. A decent APY means your balance is working while you wait out the hold period. It usually adds up to a meaningful extra amount on top of the sign-up bonus.

One thing to keep in mind: APY on savings accounts is variable. Banks can change it whenever they want, and they often do when the Federal Reserve adjusts interest rates. You lock in the bonus once you meet the requirements. The interest rate is not locked in.