APR vs APY

investment

Also known as: APR, APY, annual percentage rate, annual percentage yield

Updated · Written and reviewed by Konstantin Iakovlev

Detailed explanation

APR = nominal rate × periods per year (no compounding). APY = (1 + nominal/n)^n − 1 (compounded). Example: 5% nominal compounded monthly → 5% APR but 5.12% APY. Federal Truth in Lending Act mandates APR disclosure on loans (includes finance charges and certain fees, so a mortgage APR > note rate). Truth in Savings Act mandates APY disclosure on deposits. When comparing: same metric to same metric. A 5.5% APR mortgage costs more than a 5% APR mortgage at same term; a 5% APY savings account earns more than a 5% APR account. Daily-compounding savings accounts edge out monthly only by a few cents per $1,000 per year.

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