Finance
APR vs. APY
Updated 2025-10-03
Definition
APR (Annual Percentage Rate) is the simple annualized interest rate on a loan, excluding the effect of compounding. APY (Annual Percentage Yield) is the effective rate on savings or investments, including compounding. Federal Truth in Lending Act requires lenders to disclose APR; banks disclose APY on deposits under Regulation DD. A credit card advertised at 24% APR compounded daily produces an effective APY of roughly 27.1%. For savers, APY is always higher than or equal to the nominal rate; for borrowers, APR understates the true cost once compounding kicks in.
Primary source: CFPB APR explainer
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