APR vs APY: What's the Difference?
APR and APY appear on loans, credit cards, and savings accounts, and they're easy to confuse. Understanding the difference helps you compare offers accurately and avoid surprises.
APR — the cost of borrowing
APR, or annual percentage rate, represents the yearly cost of borrowing, usually including certain fees. You'll see it on loans and credit cards. Importantly, APR doesn't account for compounding within the year, so the effective cost of a credit card that compounds monthly is actually a bit higher than its stated APR.
APY — what you actually earn
APY, or annual percentage yield, includes the effect of compounding, which is why it appears on savings accounts and CDs. Because it reflects interest earning interest, APY is the honest number for comparing how much a savings product will actually pay you over a year.
Why the distinction matters
When comparing savings accounts, always compare APY to APY — it already bakes in compounding. When comparing loans, compare APR to APR. Mixing them up makes one option look better or worse than it really is. The more frequently an account compounds, the larger the gap between a simple rate and the APY.
See compounding in action
Try the CD calculator to see how an APY grows a deposit over a term, and the compound interest calculator to watch how compounding frequency changes the final balance. Once you see it, the APR/APY difference clicks.
Educational information only — not financial, tax, or investment advice.