APR ↔ APY
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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.
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.