APY and APR: two percentages with different jobs

AskAlexK editorial content · Published November 3, 2026 · 2 min read

APY describes annualized yield including compounding under the account’s terms. APR describes an annualized borrowing cost under applicable disclosure rules. Neither number replaces the need to read fees, timing and the specific product agreement.

Understand the decision

For a deposit with a nominal annual interest rate compounded monthly, APY can be modeled as (1 + rate/12)^12 − 1. This explains why the effective yield can be slightly higher than the nominal rate. Borrowing comparisons require more care because included charges and calculations differ by loan type.

What to do next

1. Identify whether you are looking at a deposit or borrowing quote.
2. Compare like products over the same time period.
3. Read fees and compounding assumptions beside the percentage.

Watch out for

Do not subtract an account’s APY from a card’s APR and call the difference guaranteed profit. Borrowing terms, taxes, risk and the timing of payments all affect the result.

Can I compare two products using the rate alone?

Only as an initial screen. Balances, fees, access restrictions and changing rates may alter the outcome.

This is general U.S. educational information, not a recommendation for your circumstances. Rules and product terms can change. Report a correction.