APR vs. APY: Key Differences
Compare borrowing costs and deposit yields more accurately. Read a concrete example, examine the trade-offs, and try a small exercise to see whether the principle applies to your situation.
Get the key numbers straight
- Start here. APR generally describes annual borrowing cost; APY accounts for compounding on deposits.
- Add context. Check fees and promotional periods before comparing two products.
- Keep in mind. Use the same time period and assumptions for a fair comparison.
A money example with assumptions
A loan that quotes a 12% nominal annual rate with monthly interest has a monthly rate of 1%; repeated compounding produces about 12.68% effective annual growth if that rate is applied to a balance for a full year. Product disclosures may use APR and APY under different statutory conventions.
Compare the amount you will actually pay or receive under identical conditions, not the headline percentage in isolation.
Costs, risks and exceptions
APR on loans and APY on deposits are not interchangeable labels. Fees, compounding assumptions and country-specific disclosure rules matter; the legal definition of APR may include some financing charges.
Calculate your own scenario
When comparing two offers, copy their official disclosure terms side by side. Check whether rates are fixed or variable, how fees work and whether the numbers refer to comparable durations.
Further reading and verification
Read the linked reference for additional background on money & budget. Review the applicable rules and update dates before using any example in a consequential decision.
Scope: Illustrative financial examples only. Taxes, fees, eligibility and product rules vary; this is not personalized financial advice.
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Published October 9, 2026 · BlogJD Editorial Desk · How we prepare and correct content · Report a correction.