This means a CD (or another kind of account) that pays 5% in returns annually. If you deposit $1,000 into a savings account that pays 5% simple interest annually, you will have $1,050 at the end of the year. However, the bank may calculate and pay interest every month, in which case you would end the year with $1,051.16. In the latter case, you would have earned an APY of more than 5%.