APY and APR are annualized percentages, but they are not interchangeable. APY (annual percentage yield) is used to compare interest earned on savings and other deposit accounts, reflecting compounding under the disclosed terms. APR (annual percentage rate) is used to describe borrowing costs; for loans and mortgages, it may reflect certain fees in addition to the interest rate. A credit card’s APR has another practical feature: the amount of interest charged depends on the balance, daily interest method, grace period and transactions.
For two savings accounts, begin with their APYs, then compare fees, rate conditions, and access. For two comparable loans, begin with their disclosed APRs, then compare the repayment terms and total dollar costs. Do not convert a credit-card or mortgage APR into a savings APY as though it were simply a nominal interest rate.
Free APY vs. APR Cheat Sheet
Download a one-page summary that highlights when to use APY, when to use APR, what questions to ask, and the most common comparison mistakes.
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APY vs. APR: the practical difference
| Question | APY | APR |
|---|---|---|
| Full name | Annual percentage yield | Annual percentage rate |
| Primary consumer use | Deposit accounts: savings, money market deposit accounts, CDs, certain checking accounts | Credit products: cards, mortgages, auto loans, personal loans |
| Compounding | Included in the annualized deposit yield | Not itself a universal effective-compounding measure; some credit products accrue or compound interest daily |
| Fees | Advertised APY generally does not subtract account maintenance charges | Applicable finance charges are reflected in many installment-loan APRs; rules vary by product |
| What else matters? | Variable rate, account fees, conditions, deposit insurance and access | Payment term, fee disclosures, balances, grace periods and actual borrowing cost |
The CFPB’s Regulation DD APY appendix explains how compounding is reflected in deposit yields. The CFPB’s loan interest rate versus APR explanation describes how APR can include additional finance charges.
What is APY on a savings account?
APY is an annualized yield intended to make deposit accounts easier to compare even when they compound interest at different frequencies. If an account has 4.00% APY and an unchanged $10,000 balance for one year, with no other transactions or fees, the hypothetical interest is $400 and the ending balance is $10,400.
That is not a guarantee of $400 for an actual savings account if its APY can change. Deposits, withdrawals, tiered rates and fees can also change the outcome. Ask the bank for its current disclosure and any qualifying requirements. APY already reflects interest compounding; you must not add another assumed compounding bonus to it.
For a separate product comparison, see High-Yield Savings Accounts. Verify each account’s current APY, fees, qualifying rules and access terms directly with the institution. Rates in this article are illustrative, not current account advertisements.
What is APR on a credit card or loan?
An APR describes an annualized borrowing rate under the rules for the credit product. It does not mean interest is charged only once a year. Credit-card issuers can apply daily periodic interest rates. Mortgages and many installment loans disclose APRs that reflect certain finance charges beyond the note rate.
A single credit card can have different APRs for purchases, cash advances and balance transfers. The actual interest can depend on how the issuer calculates average daily balances, whether the account has an applicable grace period, and the sequence of payments and new charges.
By contrast, a fixed-term loan has a repayment schedule and may include certain financing costs in its APR. That makes a generic formula such as “interest plus fees divided by principal” unreliable as a replacement for regulated APR calculations. Compare official lender disclosures on the same type of loan and similar terms.
The mathematical difference: nominal rate versus effective yield
For a hypothetical fixed nominal annual rate credited at equally spaced compounding periods, this familiar formula gives an effective annual yield:
Here r is the nominal annual rate as a decimal, and n is the number of compounding periods per year. This formula does not convert a fee-inclusive mortgage APR into a bank deposit APY. For broader context, see Interest and Compounding Explained.
Take a nominal annual rate of 6% compounded monthly. The monthly rate is 0.06 ÷ 12 = 0.005, giving an effective yield of about 6.1678%. A $10,000 deposit would grow to $10,616.78 in one year if those model conditions held.
Annually
No within-year compounding effect beyond the 5.00% nominal rate.
Monthly
Same nominal rate, but more frequent compounding slightly raises the effective yield.
Daily (365 days)
The effective yield is only slightly higher than monthly compounding on the same nominal rate.
| Frequency | Effective annual yield | End balance on $10,000 |
|---|---|---|
| Annually | 5.0000% | $10,500.00 |
| Monthly | 5.1162% | $10,511.62 |
| Daily (365 days) | 5.1267% | $10,512.67 |
Important: If two banks advertise the same APY, the one labeled “compounded daily” does not automatically offer more annual interest than the one labeled “compounded monthly.” The disclosed APYs have already incorporated that difference. Compare fees and requirements instead.
Savings example: a higher APY can still leave less money
Assume you have $10,000 saved for a year. Two hypothetical accounts offer fixed, unchanged balances and rates for this illustration. Account A pays 4.00% APY without a fee. Account B pays 4.20% APY but charges a $5 monthly maintenance fee.
Account A
- Advertised APY4.00%
- Interest on $10,000$400
- Annual fees$0
- Net interest after fees$400
Account B
- Advertised APY4.20%
- Interest on $10,000$420
- Annual fees$60
- Net interest after fees$360
| Measure | Account A | Account B |
|---|---|---|
| Advertised APY | 4.00% | 4.20% |
| Interest earned on fixed $10,000 | $400 | $420 |
| Annual account fees | $0 | $60 |
| Interest after separately paid fees | $400 | $360 |
On net, Account A leaves $40 more in this scenario despite the lower APY. A higher advertised yield does not always lead to the better outcome. Compare the fee schedule, minimum-balance rules, rate conditions and access limits. For a related planning question, use the Savings Goal Calculator; for emergency-cash decisions, continue with the Emergency Fund Guide for the reserve-planning decision.
Credit-card APR: a 30-day interest illustration
Suppose a card has a 24% purchase APR and charges interest using a daily periodic rate of APR ÷ 365, without daily compounding in this simplified example. Assume a constant $1,000 interest-bearing balance for 30 days, no purchases, no payments, no fees, and no applicable purchase grace period.
This is not a statement quote or a prediction for every issuer. Some use a 360-day rate convention, some use daily compounding, and balance changes or a valid grace period can alter the cost considerably. The CFPB explains those differences in its daily periodic rate guidance and credit-card interest explanation.
Do not automatically assume 24% APR costs exactly 2% of your balance every month. Look at the actual balance and calculation method. When a purchase grace period applies and its conditions are met, purchase interest can be $0 even though the account discloses a positive APR.
Loan and mortgage APR: fees and repayment terms matter
The CFPB mortgage explanation distinguishes the note interest rate from the APR. Mortgage APR typically reflects the interest rate plus certain points, broker fees and other finance charges. The Loan Estimate displays the rate and APR in different places so borrowers can compare financing offers.
A lender might, hypothetically, disclose a 6.50% note rate and a 6.80% APR. Those are illustrative disclosed input values, not values calculated here from an invented fee schedule. Deriving an actual APR requires the loan terms and applicable finance-charge rules. Variable-rate loans require extra care: the disclosed APR does not represent the maximum rate the borrower might face.
Avoid double-counting origination fees. If a lender advertises a 9.99% APR that already incorporates an applicable loan fee, adding the same fee on top of 9.99% and describing the sum as a new APR can be misleading. Compare comparable disclosures, the cash actually received, the payment schedule, prepayment terms and the total payments over the period relevant to you.
A credit-card APR, a mortgage APR and a deposit APY are not interchangeable numbers. For the broader choice between stable savings and market-based growth, visit Saving vs. Investing. Investment prices and returns fluctuate, and investment holdings are not the same as insured deposits.
Printable APY vs. APR comparison worksheet
Use the worksheet to compare similar products. It helps prevent the common error of evaluating only the largest or smallest annual percentage.
Do not write passwords, full account numbers, PINs or Social Security numbers on a worksheet you might print or share.
Want a faster reference?
Use the full worksheet above when you want to compare a real account or loan offer. If you just want the summary version, download the cheat sheet and keep it with your budgeting or banking notes.
Six mistakes when comparing annual rates
- Treating APR as interest charged annually. Many lenders use daily or periodic balance calculations.
- Assuming APY includes bank-account maintenance fees. Compare the actual fee schedule.
- Compounding an APY again. Deposit APY is already a compounding-aware annual disclosure.
- Converting a fee-inclusive loan APR with a deposit formula. Financing charges and repayment schedules are more complex.
- Ignoring grace periods and changing balances. A credit-card APR by itself does not determine your next interest charge.
- Calling a dividend or stock return an insured APY. Market investments can gain or lose value and do not promise a fixed deposit yield.
APY vs. APR frequently asked questions
Is APY always higher than APR?
No universal comparison exists between two unrelated products. For one positive nominal rate under the standard periodic-compounding model, the effective annual yield is at least as large as the nominal rate, and larger with more-than-annual compounding. That is not a rule comparing any advertised deposit APY to a borrowing APR.
Does APY guarantee how much I will earn?
No. The APY is an annualized disclosure. Variable rates, fees, balances, deposits and withdrawals affect actual earnings. A quoted APY should be checked against current account terms.
Is APR the same as simple interest?
No. APR is a lending disclosure. Interest may accrue daily, and installment-loan APR can account for certain finance charges in addition to the note interest rate.
Should I compare savings accounts using APY or APR?
Begin with disclosed APY. Then consider qualifying rules, fees, balance tiers, rate variability, deposit insurance and how you access the money.
Should I compare mortgages using APR or interest rate?
Compare both, then inspect points, fees, the payment schedule, loan term, cash to close and any adjustable-rate provisions. A single percentage does not settle the entire financing decision.
Can a card have a high purchase APR but charge no purchase interest?
Yes. A purchase grace period can allow you to avoid purchase interest when the issuer’s conditions are met. Different rules can apply to balances already carried, cash advances and other transactions.
Is a dividend yield the same thing as APY?
No. A stock’s dividend yield is not the same standardized deposit disclosure as an account APY, and it does not include possible changes in investment value.
Bottom line: compare like with like
For deposits, APY helps you compare interest earnings with compounding reflected. For borrowing, APR helps you compare credit costs, but its calculation and the relevant additional checks depend on the loan. Put the amount, fees, dates, restrictions and dollar outcome beside the annual percentage before making a decision.