Two similar-looking acronyms, two very different numbers. Here's how to read either one correctly before you sign anything.
APR and APY get used almost interchangeably in casual conversation, but they answer two different questions — and mixing them up can make a loan look cheaper or a savings account look better than it actually is.
Annual Percentage Rate is the yearly cost of borrowing money, expressed as a percentage. It typically includes the interest rate plus certain fees, which is why APR is usually a more complete number than the bare interest rate when comparing loan offers.
Annual Percentage Yield is the yearly return on money you deposit, and critically, it accounts for compounding — interest earning interest as it's added back to your balance over the year. A 4.8% APY will out-earn a 4.8% simple interest rate, because of that compounding effect.
If you're borrowing, look at APR. If you're saving or investing, look at APY. Both numbers tend to look more favorable to the institution than the simple rate alone — read the basis, not just the headline percentage.
When two offers look close, the one with the more complete number — APR or APY — is usually the more honest comparison.
The practical takeaway: whenever you're comparing two financial products, make sure you're comparing the same type of number. An interest rate on one offer and an APY on another aren't directly comparable, even if they look similar at a glance.