APR and APY look almost identical, but they answer opposite questions — and mixing them up can cost or earn you real money.
APR: the cost of borrowing
Annual percentage rate describes the yearly cost of borrowing, and it typically includes certain fees. When you are the borrower, lower APR is better.
APY: the reward for saving
Annual percentage yield describes what you earn on savings, and it accounts for compounding — interest earning interest. When you are the saver, higher APY is better. Crucially, the same nominal rate produces a higher APY the more often it compounds.
Why it matters
Two accounts can advertise the same rate yet pay differently once compounding frequency is considered. Always compare savings on APY and borrowing on APR so you are comparing like with like.
See how a yield compounds over time with the savings-growth tool in our business calculators.