Personal Finance
APR vs APY
APR is the simple yearly rate; APY includes the effect of compounding.
Also known as: annual percentage rate, annual percentage yield
Updated June 2026
APR (Annual Percentage Rate) is the yearly interest rate without compounding. APY (Annual Percentage Yield) is the rate with compounding included — so it’s always equal to or higher than APR.
Quick rule
- Borrowing? Lenders advertise the lower-sounding number that flatters them — compare like-for-like.
- Saving? A 5% APR account that compounds monthly yields about 5.12% APY.
Why it matters
The more often interest compounds (daily vs monthly vs yearly), the bigger the gap between APR and APY. Always check which one a product is quoting.