Written and reviewed by FinanceCruncher Editorial Team
Last reviewed 2025-06-01. Sources and assumptions are documented below.
APR vs. APY
APR is a nominal annual rate. APY is an effective annual rate that includes compounding. When interest compounds more than once per year, APY can be higher than APR even when the quoted APR stays the same.
When APR is useful
APR is commonly used for loans and credit products. It helps describe annual borrowing cost, although fees and disclosure rules can affect what is included.
When APY is useful
APY is useful for savings and deposit products because it shows the annual effect of compounding. It can make accounts with different compounding schedules easier to compare.