APR vs. APY: What the Difference Costs or Earns You
By the Find a Calculator editorial team ·
APR (annual percentage rate) is a yearly interest rate that ignores compounding within the year. APY (annual percentage yield) is the rate you actually earn or pay once compounding is included. For the same account, APY is always equal to or higher than APR.
The conversion
APY = (1 + APR / n)^n - 1, where n is the number of times interest compounds per year. A 5% APR compounded monthly gives (1 + 0.05 / 12)^12 - 1 = 5.116% APY. The APY calculator does this for any rate and frequency.
| Stated APR | Compounding | APY |
|---|---|---|
| 4.5% | Monthly | 4.594% |
| 4.5% | Daily | 4.602% |
| 5% | Monthly | 5.116% |
| 24% | Daily | 27.115% |
Why each side quotes a different number
Banks advertise deposit accounts by APY because it is the larger figure. Lenders advertise loans and credit cards by APR because it is the smaller one. Both are following disclosure rules, and both numbers are accurate; they simply measure different things.
The gap is small at low rates and large at high ones. At 4.5% the difference between APR and APY is under a tenth of a point. On a credit card charging 24% APR with daily compounding, a balance left untouched for a year grows by 27.1%.
On savings, compare APY to APY
Compounding frequency matters far less than the rate itself. Moving from monthly to daily compounding at 4.5% adds 0.008 percentage points. Moving from a 0.45% account to a 4.5% account is the decision that counts: $10,000 becomes $10,227 after five years at 0.45% APY and $12,462 at 4.5% APY.
Project your own balance with the savings calculator, or the CD calculator for a fixed term.
On loans, APR also includes fees
For mortgages and personal loans, the legally defined APR folds certain lender fees into the rate, so it is higher than the note rate. That makes APR the right figure for comparing two loan offers of the same type and term, even though it understates the compounding effect.
Quick rules
- Saving or investing: look for the highest APY.
- Borrowing: compare APRs on loans with the same term, then check total interest in a loan calculator.
- Carrying a card balance: your true yearly cost is the APY, not the APR printed on the statement. See how long payoff takes with the credit card payoff calculator.
Open the APY CalculatorConvert a nominal interest rate (APR) to annual percentage yield for any compounding frequency.