APR vs APY: What's the Difference?
APR and APY both express a yearly percentage, but they answer different questions. APR is commonly used to describe borrowing costs, while APY is used for deposit accounts to reflect interest and compounding.
What is APR?
APR stands for annual percentage rate. For credit products, it is a standard way to compare the cost of borrowing. A credit card's interest rate is typically stated as an APR, although different balances can have different APRs.
APR can also incorporate certain fees depending on the type of credit product and the rules that apply. Always read the product's disclosures rather than assuming that every APR is calculated in exactly the same way.
What is APY?
APY stands for annual percentage yield. For U.S. deposit accounts, APY reflects the amount of interest paid based on the interest rate and compounding frequency. That makes APY useful when comparing potential earnings on deposit accounts.
| Term | Usually used for | What it helps you understand |
|---|---|---|
| APR | Borrowing | The annualized cost of credit |
| APY | Deposit accounts | The annualized yield including compounding |
Why the distinction matters
Imagine two savings accounts advertise the same nominal interest rate but compound differently. Their APYs can differ. Looking at APY helps you compare the annual yield under the account's disclosed compounding assumptions.
For borrowing, a credit card may state an APR while interest is calculated using a periodic rate. Your card agreement explains the calculation method and any grace-period rules.
A common mistake
Do not compare a savings account's APY directly with a credit card's APR as if they were identical measures. One describes a deposit yield and the other describes a borrowing cost.
Related calculator use
Use a compound-interest or savings calculator to explore hypothetical growth. For a real bank account, use the institution's disclosed APY, fees, minimum-balance requirements and account terms.