What Is APR vs APY?

APY stands for annual percentage yield. Sometimes, people call APY “EAR,” which stands for effective annual rate. Usually, the term APY applies to things like savings accounts or certificates of deposit.

In these instances, the higher the APY, the better. If you have a savings account with a high APY, this means that your money will earn interest and grow faster than in an account with a lower APY. Often, APYs can change with the market after the account has been opened and you might not be locked into one APY number.
APY is calculated by adding one to the periodic rate. Then, this number is multiplied by the power of the number of periods in a year. Finally, you will subtract the number one from this number.
APR vs APY

In short, APY and APR are both measures of interest on an annual basis. APR measures interest that you will be charged on something like a credit card or a loan, while APY measures interest you will earn in something like a savings account or certificate of deposit.
APR vs APY Example

Let’s say you have a credit card with a $1000 balance and a savings account with a $1000 balance. The credit card company charges you 1% interest per month, and your bank gives your 1% interest compounded monthly.
In this case, your APR is 12%. At the end of the year, if you do not make any payments, your new balance is $1120, with $120 of those dollars being interest. Your APY on your savings account is 12.68%, which means at the end of the year, your savings account will have $1126.80.