Does anyone have a good way of explaining what an APY is to a customer? For example, we offered a 9-month CD, quarterly compounding with an APY of 2.55% ... the interest rate is 2.53%. The customer is questioning if he is actually earning the 2.55% yield since the term is only 9 months. Anyone have a good way to explain how an APY works? Thanks.

The APY calculation assumes that funds -- including interest -- remain on deposit for one year exactly.

You should be able to show that, calculating interest on the account for its 9-month term, rolling the interest into the balance and reinvesting for the balance of the one-year term will yield the same amount of interest as a simple-interest account at 2.55% for one year.

Do a search for this topic. There have been a few very good discussions about this with explanations that should help.

Here is one of interest:
here