# What is the difference between APY and APR?

> APY is what you earn on savings, compounding included. APR is what you pay to borrow, usually without compounding.

Source: https://www.walletprep.com/learn/apy-vs-apr/ · Updated 2026-10-04 · Money basics

APY (annual percentage yield) tells you what a savings account earns in a year, including compounding. APR (annual percentage rate) tells you the yearly cost of borrowing, and it usually leaves compounding out, so the cost of a card balance you carry is a bit higher than its APR.

## Key facts
- **APY measures what you earn.** Federal Truth in Savings rules define APY as the total interest paid on an account over 365 days, based on the rate and how often interest compounds. Every bank calculates it the same way, so you can compare accounts fairly.
- **APR measures what you pay.** For a loan, the APR is the interest rate plus certain fees charged when the loan is made. For a credit card, the APR is simply the yearly interest rate, and most cards have more than one.
- **Compounding makes the gap.** The more often interest compounds, the more APY rises above the plain rate. A 4.00% rate compounded daily gives a 4.08% APY. On debt, the same effect makes an unpaid balance cost more than the APR.
- **Neither one is a promise for variable rates.** Savings APYs and most credit card APRs can change. A savings APY can drop after you open the account, and a variable card APR moves with a benchmark rate.

## What APY tells you
APY answers one question: if I leave this money here for a year, how much interest will I have? It bakes in compounding, which is interest earning interest. A bank that pays a 4.00% rate and adds interest daily ends up paying a 4.08% APY, because each day's interest starts earning too.
Because the rules for calculating APY are set by federal regulation, it is the fair way to compare savings accounts, money market accounts and certificates of deposit. Your monthly savings statement also shows the APY you actually earned for that period.

## What APR tells you
APR is the yearly price of borrowing. On a car loan, personal loan or mortgage, it includes the interest rate plus some up-front fees, so two loans with the same rate can have different APRs. That makes APR the better number to compare lenders.
On a credit card, the APR is the interest rate itself, stated per year. The card divides it into a daily or monthly rate and charges that on your balance. At 24% APR, a monthly rate of 2% on a $2,000 balance is $40 of interest for the month.

## Why the numbers differ
APR is a simple yearly rate. It doesn't show what happens when unpaid interest is added to your balance and starts collecting interest too. If you carried $2,000 on a 24% card for a full year without paying, monthly compounding would grow it to about $2,536, which is 26.82% in one year.
APY is the opposite. It already includes compounding, so it is the honest number for savings. Federal rules require banks to quote savings as APY and lenders to quote borrowing as APR, so you will usually see each one in its own place.

## Where you will see each one
APY appears on savings accounts, high-yield savings, money market accounts, CDs and some checking accounts that pay interest. APR appears on credit cards, car loans, student loans, personal loans, mortgages and buy now, pay later plans that charge interest.
Credit unions often call a savings account a "share account" and still show an APY. Some loans also show an interest rate next to the APR. When both appear, use the APR to compare total cost and the interest rate to understand the monthly payment.

## A worked example: a savings APY next to a card APR
Dana, a pharmacy tech, has $5,000 in savings at 4% APY and a $2,000 credit card balance at 24% APR. She compares what each one does in money.

- Savings balance: $5,000
- APY: 4%
- Interest for a year: $200
- Savings after a year: = $5,200
- Card balance: $2,000
- APR: 24% APR
- Interest this month: $40
- Owed next month: = $2,040

1. Savings: $5,000 × 4% = $200 a year. The APY already includes compounding, so that is what she earns if the rate holds.
2. Card: 24% ÷ 12 = 2% a month. $2,000 × 2% = $40 of interest in one month, so she owes $2,040 before paying.
3. If the balance stayed at $2,000 all year, the card would cost $40 × 12 = $480, while savings earns $200.

### What different card APRs cost on a $2,000 balance in one month

| APR | Monthly rate | Interest on $2,000 in one month |
| --- | --- | --- |
| 10% | 0.83% | $16.67 |
| 15% | 1.25% | $25.00 |
| 20% | 1.67% | $33.33 |
| 24% | 2% | $40.00 |
| 29% | 2.42% | $48.33 |

## Common mistakes
- **Comparing an APY with an APR.** A 4% APY savings account doesn't offset a 24% APR card. The card costs about 6 times what the savings earns on the same dollars.
- **Shopping loans by interest rate alone.** A loan with a low rate and a big origination fee can cost more than one with a slightly higher rate and no fee. The APR shows the fees.
- **Missing the promotional end date.** A 0% intro APR on a card or a high intro APY on savings usually lasts a set number of months. Write down the date it ends and the rate that follows.

## Questions people ask
### Is a higher APY or a lower APY better?
For savings, a higher APY is better because you earn more. Make sure the account is insured, has no monthly fee that eats the interest, and check how long any promotional APY lasts.

### Is a 5% APY good?
It depends on current rates, which move with the economy. Compare it with the APY at other insured banks and credit unions this week, and check whether it is an intro rate or needs a high minimum balance.

### Does APR include compounding?
Not on its own. APR is a simple yearly rate. If interest is added to an unpaid balance each month, the effective yearly cost ends up above the APR. That is why carrying a card balance costs more than the APR suggests.

### What is a daily periodic rate?
It is the APR divided by 365 (some cards use 360). Many cards charge this rate on your balance each day. A 24% APR works out to about 0.066% a day.

## Do this today
Log in to your savings account and write down its APY, then find the purchase APR on your credit card statement. If you carry a card balance, divide the APR by 12 to see the monthly rate you are paying.

## Sources
- [CFPB: Regulation DD § 1030.2, definitions of annual percentage yield and interest rate](https://www.consumerfinance.gov/rules-policy/regulations/1030/2/)
- [CFPB: Regulation DD appendix A, annual percentage yield calculation](https://www.consumerfinance.gov/rules-policy/regulations/1030/a/)
- [CFPB: What is the difference between a loan interest rate and the APR?](https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-loan-interest-rate-and-the-apr-en-733/)
- [CFPB: What is a credit card interest rate? What does APR mean?](https://www.consumerfinance.gov/ask-cfpb/what-is-a-credit-card-interest-rate-what-does-apr-mean-en-44/)
- [CFPB: What is a daily periodic rate on a credit card?](https://www.consumerfinance.gov/ask-cfpb/what-is-a-daily-periodic-rate-on-a-credit-card-en-46/)

_General education, not personalized financial, tax or legal advice. Figures are examples. Check current rates and limits before you act._