{"id":15159,"date":"2025-12-15T06:50:00","date_gmt":"2025-12-15T12:50:00","guid":{"rendered":"https:\/\/www.discover.com\/online-banking\/banking-topics\/?p=15159"},"modified":"2026-02-04T12:08:09","modified_gmt":"2026-02-04T18:08:09","slug":"apy-vs-apr","status":"publish","type":"post","link":"https:\/\/www.discover.com\/online-banking\/banking-topics\/apy-vs-apr\/","title":{"rendered":"What is the difference between APR and APY?"},"content":{"rendered":"\n<p>It\u2019s easy to get confused when the concepts of annual percentage yield (APY) and annual percentage rate (APR) are being tossed around. You\u2019ve probably come across these acronyms when opening new financial accounts or reviewing the terms on your existing accounts, but what&nbsp;<em>exactly<\/em>&nbsp;do they mean? What is the difference between APR and APY?<\/p>\n\n\n\n<p>Now, roll up your sleeves for a deep dive into APR vs. APY:<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-apr-vs-apy-how-they-re-different\">APR vs. APY: How they&#8217;re different<\/h2>\n\n\n\n<p>If you\u2019re wondering, \u201cWhat is APR, and what is APY?\u201d here\u2019s a quick primer. In their simplest forms, APR refers to what you owe when you borrow while APY refers to what you earn on the cash that\u2019s stashed in a savings vehicle. While it may sound like something that belongs in an advanced finance class, understanding the difference between APR and APY can help you make smart financial decisions when it comes to saving for your&nbsp;<a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/financial-goal-calculator\/\" target=\"_blank\" rel=\"noreferrer noopener\">financial goals<\/a>&nbsp;and managing your debt.<\/p>\n\n\n\n<p>Now, you\u2019re ready for a deeper dive into the differences between APR vs. APY:<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is APR?<\/h2>\n\n\n\n<p>The APR is the total amount of annual interest you pay on an installment loan or revolving line of credit. \u201cIf you\u2019re getting a loan, that\u2019s usually the number you\u2019re going to see,\u201d says Erik Goodge,<strong> <\/strong>CFP\u00ae, president of a financial planning solutions group based in Newburgh, Indiana, of APR.<\/p>\n\n\n\n<p>When you\u2019re learning the difference between APR and APY, note that you may see an APR associated with:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Credit cards and store cards<\/li>\n\n\n\n<li>Auto, home, personal, and student loans<\/li>\n\n\n\n<li>Lines of credit, including home equity lines of credit (HELOCs) and personal lines of credit<\/li>\n<\/ul>\n\n\n\n<p>When considering a new credit card or loan option, evaluating an account\u2019s APR can be more telling than evaluating its interest rate. While <a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/how-does-the-federal-reserve-interest-rate-affect-me\/\" target=\"_blank\" rel=\"noreferrer noopener\">APR is based on the interest rate<\/a>, it may also include some of the lender\u2019s fees, points, and other costs associated with credit, Goodge says.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"2121\" height=\"874\" src=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_2_NEW-e1679089380809.jpg\" alt=\"A man and a woman sitting at a kitchen table smiling, while a woman standing shows them something on a smartphone.\" class=\"wp-image-15165\" srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_2_NEW-e1679089380809.jpg 2121w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_2_NEW-e1679089380809-300x124.jpg 300w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_2_NEW-e1679089380809-780x321.jpg 780w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_2_NEW-e1679089380809-768x316.jpg 768w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_2_NEW-e1679089380809-1536x633.jpg 1536w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_2_NEW-e1679089380809-2048x844.jpg 2048w\" sizes=\"auto, (max-width: 2121px) 100vw, 2121px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p>Say you\u2019re comparing two lenders that both offer $1,000 loans with a 10.00% interest rate. Lender A charges a $50 fee and adds it to your loan\u2019s balance. Lender B does not. If you compare the APRs, Lender B will likely have the lower APR. Come again?<\/p>\n\n\n\n<p>This is because with Lender B, the 10.00% interest rate applies to your $1,000 loan. With Lender A, on the other hand, you may pay more in interest because the 10.00% interest rate applies to the $1,050 (the loan amount plus fee) you have to repay.<\/p>\n\n\n\n<p>In some cases a loan with a lower interest rate but high fees could have a higher APR than a loan with a higher interest rate and lower fees.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What to know when comparing APRs<\/h2>\n\n\n\n<p>Comparing just the APR on a new credit card or loan may not tell you the whole borrowing story. Lenders might include different charges when making their APR calculations.<\/p>\n\n\n\n<p>\u201cIf you\u2019re comparing quotes from different lenders, you need to look closely to see which fees it includes,\u201d says Justin Pritchard, CFP\u00ae and owner of an independent financial planning practice based in Montrose, Colorado.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"2121\" height=\"869\" src=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_1_NEW-e1679089499779.jpg\" alt=\"A woman paying with a credit card at store checkout, while the cashier looks on smiling.\" class=\"wp-image-15164\" srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_1_NEW-e1679089499779.jpg 2121w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_1_NEW-e1679089499779-300x123.jpg 300w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_1_NEW-e1679089499779-780x320.jpg 780w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_1_NEW-e1679089499779-768x315.jpg 768w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_1_NEW-e1679089499779-1536x629.jpg 1536w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2023\/03\/APR_vs_APY_INARTICLE_1_NEW-e1679089499779-2048x839.jpg 2048w\" sizes=\"auto, (max-width: 2121px) 100vw, 2121px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p>With credit cards, for example, the annual fee may not be reflected in the APR. If you\u2019re comparing two cards with the same APR, you\u2019ll also want to look at the annual fee to understand your potential expense. Credit cards may also have multiple APRs depending on the type of transaction. For instance, the APR for cash advances could be higher than the one for regular purchases.<\/p>\n\n\n\n<p>When evaluating APR vs. APY, know that a loan\u2019s APR is calculated assuming you\u2019ll take the entire term to pay it off. So, if you\u2019re comparing 30-year mortgages, but you plan on moving in five years, you may want to recalculate the APR taking the shorter term into consideration. You could learn that a loan with fewer upfront fees winds up being a lower cost, even if it has a higher advertised APR.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is APY?<\/h2>\n\n\n\n<p>APY refers to the total amount of interest you earn on a deposit account each year. You may not think of yourself as a lender, but if you have a deposit account, you are. The bank is essentially paying you for lending them money.&nbsp;Bank accounts&nbsp;that are often associated with an APY include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Savings accounts<\/li>\n\n\n\n<li>Money market accounts<\/li>\n\n\n\n<li>Certificates of deposit (CDs)<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"2006\" height=\"852\" src=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2017\/10\/How-to-Save-Money-the-Easy-Way_2-INARTICLE-dup-e1509477284133.jpg\" alt=\"An illustration showing four pots. First pot showing three gold coins with dollar signs on them, second pot being watered with a watering can and a small plant growing, third pot showing the plant growing larger, and a fourth pot with a larger plant showing seven gold coins with dollar sings on them.\" class=\"wp-image-4495\" srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2017\/10\/How-to-Save-Money-the-Easy-Way_2-INARTICLE-dup-e1509477284133.jpg 2006w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2017\/10\/How-to-Save-Money-the-Easy-Way_2-INARTICLE-dup-e1509477284133-300x127.jpg 300w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2017\/10\/How-to-Save-Money-the-Easy-Way_2-INARTICLE-dup-e1509477284133-780x331.jpg 780w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2017\/10\/How-to-Save-Money-the-Easy-Way_2-INARTICLE-dup-e1509477284133-768x326.jpg 768w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2017\/10\/How-to-Save-Money-the-Easy-Way_2-INARTICLE-dup-e1509477284133-1536x652.jpg 1536w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2017\/10\/How-to-Save-Money-the-Easy-Way_2-INARTICLE-dup-e1509477284133-730x310.jpg 730w\" sizes=\"auto, (max-width: 2006px) 100vw, 2006px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p>APY is based on an account\u2019s interest rate, and it also factors in&nbsp;<em>how often<\/em>&nbsp;the&nbsp;<a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/compounding-your-savings-for-retirement\/\" target=\"_blank\" rel=\"noreferrer noopener\">interest compounds<\/a>. Pritchard says one of the big differences between APY and APR is that APY takes compounding into account. (APR only shows the annual interest on an account, not whether the interest compounds or not.)<\/p>\n\n\n\n<p>Understanding how compounding works is key to understanding APY. On some deposit accounts, interest compounds daily, meaning interest gets added to your account\u2019s principal balance one day, and the next day the interest rate applies to that new principal balance. With other deposit accounts, interest may compound monthly, quarterly, or annually. The compounding effect of APY can help you accumulate wealth faster because you are effectively earning interest on your interest. Nice, right?<\/p>\n\n\n\n<p>For example, if you&nbsp;open an online savings account&nbsp;with a 2.10% APY, interest compounds daily and you deposit $15,000, after five years you\u2019ll have earned a total of $1,644 in interest.<sup>1<\/sup>&nbsp;Your total interest earned each year would be as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>1 year: $315<\/li>\n\n\n\n<li>2 years: $637<\/li>\n\n\n\n<li>3 years: $966<\/li>\n\n\n\n<li>4 years: $1,301<\/li>\n\n\n\n<li>5 years: $1,644<\/li>\n<\/ul>\n\n\n\n<p>\u201cThe magnitude of difference between APR and APY grows with more compounding periods,\u201d Goodge says. \u201cThe only way APR and APY would be the same is if you were only getting paid or owed interest once per year,\u201d Goodge says.<\/p>\n\n\n<\/div>\n\n\n<div class=\"mx-auto block-quote block-quote--1back bg-fixed bg-center bg-no-repeat bg-cover z-0\">\n    <div class=\"block-quote__glow\"><\/div>\n    <blockquote class=\"post--constrain-large\">\n        <p>&#8220;Minimum balance fees, or any type of activity-related fees, like ATM withdrawals, could eat into the interest you earn. A higher APY might not be worth it if you&#8217;re going to pay fees.&#8221; <\/p>\n                    <footer class=\"block-quote__source\">Justin Pritchard, CFP\u00ae, president of a financial planning solutions group<\/footer>\n            <\/blockquote>\n<\/div>\n\n\n    <div class=\"post__content\">\n\n\n\n\n<h2 class=\"wp-block-heading\">What to know when comparing APYs<\/h2>\n\n\n\n<p>Now it\u2019s time to compare the APY on different accounts to help you determine how much money your savings can earn over time. If the numbers start to make you dizzy, a savings calculator can come to the rescue. <\/p>\n\n\n\n<p>When shopping around for a new account, don\u2019t call it quits after comparing only the APY. While it\u2019s a helpful indicator of the returns you\u2019ll get, the APY won\u2019t take potential fees into consideration.<\/p>\n\n\n\n<p>\u201cMinimum balance fees, or any type of activity-related fees, like ATM withdrawals, could eat into the interest you earn,\u201d Pritchard says. \u201cA higher APY might not be worth it if you\u2019re going to pay fees.\u201d<\/p>\n\n\n\n<p>Taking the time to learn about&nbsp;different <a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/where-should-i-keep-my-money\/\" target=\"_blank\" rel=\"noreferrer noopener\">types of bank accounts<\/a> that don\u2019t charge fees\u2014or even <a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/how-to-avoid-bank-fees\/\" target=\"_blank\" rel=\"noreferrer noopener\">banks without monthly fees<\/a>\u2014could help you maximize your interest earnings. <\/p>\n\n\n<\/div>\n\n\n<div class=\"mx-auto block-quote block-quote--5back bg-fixed bg-center bg-no-repeat bg-cover z-0\">\n    <div class=\"block-quote__glow\"><\/div>\n    <blockquote class=\"post--constrain-large\">\n        <p>In their simplest forms, APR refers to what you owe when you borrow while APY refers to what you earn on the cash that\u2019s stashed in a savings vehicle.<\/p>\n            <\/blockquote>\n<\/div>\n\n\n    <div class=\"post__content\">\n\n\n\n\n<h2 class=\"wp-block-heading\">What\u2019s the big difference between APR and APY?<\/h2>\n\n\n\n<p>When exploring new financial accounts, APY will be a factor when comparing <a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/types-of-savings-accounts\/\">different types of savings accounts<\/a>, while APR will impact your terms on credit. You can think of the interest rate as a starting point for comparison as you shop for savings and credit options, as long as you keep in mind all of the variables and differences between APY and APR.<\/p>\n\n\n\n<p>So, now you know that APR applies to your borrowing and APY applies to your saving. But do you know what kind of saver and spender you are? Take our <a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/money-personality-quiz\/?ICMPGN=OS-BK-ARTCTA\" target=\"_blank\" rel=\"noreferrer noopener\">money personality quiz<\/a> to find out.&nbsp;<\/p>\n\n\n\n<p class=\"disclaimer\"><sup>1<\/sup>&nbsp;Assumes principal and interest remain on deposit and interest rate and APY do not change for one year. The values shown are for illustrative and informational purposes only and may not apply to your individual circumstances.<\/p>\n\n\n\n<p class=\"disclaimer\">Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.<\/p>\n\n\n\n<p class=\"disclaimer\">The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover, division of Capital One, N.A., or its affiliates.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Learn the difference between APR and APY\u2014and how each can have a big impact on your finances. <\/p>\n","protected":false},"author":15,"featured_media":7454,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[76,9],"tags":[112,117,126,35,55,72,32,137,39],"class_list":["post-15159","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banking101","category-online-banking","tag-cd","tag-compound-interest","tag-fees","tag-financial-education","tag-financial-goals","tag-interest-rates","tag-online-savings-account","tag-paying-down-debt","tag-saving"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/posts\/15159","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/comments?post=15159"}],"version-history":[{"count":29,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/posts\/15159\/revisions"}],"predecessor-version":[{"id":22658,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/posts\/15159\/revisions\/22658"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/media\/7454"}],"wp:attachment":[{"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/media?parent=15159"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/categories?post=15159"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/tags?post=15159"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}