APR ↔ APY
calculator
Banks quote whichever number flatters them: APR on loans, APY on savings. The difference is compounding. Convert either way, at any frequency, and see the real annual rate.
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Two names for one rate
APR is the nominal annual rate, the periodic rate times the number of periods, ignoring compounding. APY (or effective annual rate) includes compounding: what the money actually grows by over a year. Savings products advertise APY because it's bigger; loan products quote APR because it's smaller. Same math, opposite marketing.
On $10,000: $511.62 versus $500, the compounding gap.
Where it bites
The gap grows with the rate and the frequency. A credit card at 24% APR compounding daily is really about 27.1% APY, the number that actually hits the balance. When comparing products, always convert both to APY; it's the only apples-to-apples figure. The mechanics live in the compound interest calculator.
APR ↔ APY FAQ
APR is the nominal yearly rate ignoring compounding; APY includes compounding and reflects what money actually grows by in a year. APY is always equal or higher, with the gap widening at higher rates and frequencies.
APY = (1 + APR÷n)^n − 1, where n is the compounding periods per year. 5% APR compounded monthly is 5.116% APY.
Marketing. APY is the larger number, so it advertises savings; APR is the smaller number, so it advertises loans. Converting both to APY gives an honest comparison.
It pushes the true cost above the sticker: 24% APR compounding daily is roughly 27.1% APY, the effective rate your balance actually experiences.