APR
APR stands for Annual Percentage Rate. It’s the interest rate you’d pay on a loan (such as credit card debt you don’t pay off when the bill’s due) or earn on an investment in one year including fees.
APY
APY stands for Annual Percentage Yield. It’s just like APR, except it takes into account the compound interest you’d earn or pay over that year. APY includes interest you’ve already accumulated in its calculations, so it is higher than the APR. This is why banks advertise the APY for savings accounts but the APR for loans and credit cards.
Why You Need to Know This
APR is helpful for comparing loans, such as one credit card offer versus another’s or one mortgage loan from another. The APY is more realistic, however, and you can calculate it yourself.
The Most Important Financial Terms Everyone Should Know
