We've been baking and buying yeast for years, and sometimes the yeast choices in the baking aisle still get us confused!
Here's the thing: Yes, there is a difference. And yes, it does make a difference in your recipe which one you use.
Active Dry Yeast
This is probably what comes to mind when you think of yeast. It's dry and granular, about the consistency of cornmeal. To use it, you dissolve a few teaspoons in warm water (110-degrees or cooler) and then add it to the rest of the ingredients. This yeast will behave 'typically' and will give your dough two rises.
Instant Active Dry Yeast
This is also known as "bread machine yeast." This yeast is milled into finer particles and it does not need to be dissolved in water like active dry yeast does so you can add it along with the dry ingredients.
This yeast also gives you two separate rises and it can be used interchangeably with active dry yeast. Measure out the same amount of yeast and skip the water-activation step.
This yeast has also been milled into smaller particles so that it doesn't need to be dissolved into water. In addition, enzymes and other additives are included to make the dough rise faster. With this yeast, you can skip the first rise of the dough and shape the loaves right after kneading.
What you save in time, you lose in flavor and structure. Your final loaf will be fairly bland and commercial tasting, with a tight, uniform crumb. Since it behaves so differently, this yeast cannot be substituted for either active dry or instant active dry yeasts.
Fresh Compressed Cake Yeast
This is the kind of yeast that commercial bakers tend to use. It's a solid block with a clay-like consistency, is more dependable, and dissolves easily. However, it's 2-week shelf life makes it less ideal for home bakers to use (the granular yeasts above have a shelf-life of about a year in the fridge).
If you want to try fresh yeast, use twice the amount of fresh yeast as dry yeast called for in the recipe.
We recommend picking one kind of yeast, becoming familiar with it, and using it in everything unless the recipe gives a specific reason to do otherwise. For the most part, we use active dry yeast since it's what we've used the longest!
What about you?
(Image Credit: Breadworld.com)