APY refers to how much interest you earn on a deposit during a year, taking into account the effect of compounding interest. This is different from the interest rate, which does not take compounding into account. The higher the APY, the more you can expect to earn on your deposit. But make sure the APY you've been quoted doesn't come with other conditions, like fees or other requirements that don’t work for you. Some banks offer introductory APYs that seem attractive until you notice that they won't stay competitive for long. Online banks tend to offer more competitive APYs than traditional brick-and-mortar banks.