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APY vs APR

Understand the difference between APR and APY (effective annual rate) and why it matters when comparing products.

Quick definitions

  • APR: the stated annual interest rate (does not include compounding).
  • APY / EAR: the effective annual rate including compounding.

Why APY is better for comparing

If two products advertise the same APR but compound at different frequencies, the one compounding more often will produce a slightly higher yield. APY converts everything to a common annual basis.

Example

An 8% APR compounded monthly yields a higher effective annual rate than 8% compounded annually. Use the calculator to see the difference instantly.

Related guides

What is compound interest?Definition, formula, and a quick example. Compound interest formula explainedBreak down the formula with step-by-step examples. Compound vs simple interestA side-by-side comparison with a quick table and example.