Investing
APY vs. APR, explained in two minutes
The two acronyms that decide how much you earn or owe.
Leo Martins
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2 min read
APR is the yearly rate before compounding. APY includes the effect of compounding, so it shows what you actually earn or pay over a year.
Why the difference matters
When interest compounds daily, each day’s interest starts earning interest too. That is why a savings APY is slightly higher than its APR. For loans, the same effect works against you.
Which number to compare
Compare savings accounts by APY and loans by APR, and always check how often interest compounds.
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