APR vs APY Explained (And When Each One Matters) | Invorya

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Percent symbols and calculator — APR vs APY

Banking Basics • 4 min read

APR vs APY Explained (And When Each One Matters)

Q: Does a higher APY always mean more money?

All else equal, yes—APY already includes compounding. But check for promo periods or minimums.

Q: Why don’t credit cards show APY?

Debts use APR for standardized comparison. Balances, fees, and compounding vary; APR keeps disclosures consistent.

Q: How can APY be higher than APR?

Compounding during the year boosts the effective annual return. For example, 5% APR compounded monthly yields about 5.12% APY.

Q: What about APY after fees?

Some accounts list a net APY after fees. If not, subtract recurring fees from expected earnings to estimate net yield.

APR tells you the rate. APY tells you the result after compounding. Here’s the difference — with quick converters.

APR vs APY — Quick Definitions

APR (Annual Percentage Rate)

The stated annual rate. For loans, APR may also roll in certain fees. It does not include compounding by itself.

APY (Annual Percentage Yield)

The effective yearly return after compounding. What you actually earn on savings over a year, assuming the compounding schedule.

Easy memory trick: APR = Rate, APY = Yield.

Why They Differ

Compounding means interest earns interest. If 5% is compounded monthly, your balance grows a bit each month — so the year’s total gain is slightly more than 5%.

APR	Compounds	APY (effective)

Instant Converters

APR → APY and APY → APR

APR (%)

Compounds / year

APY (%)

Compounds / year

APR (%)

Tip: APY is what you earn; APR is what’s stated.

Real-Life Examples

Savings account

Bank advertises 5.00% APR, compounded monthly. Effective yield is higher: APY ≈ 5.12%. That’s what shows up on your statement as the year’s gain.

Credit card

Cards show APR (e.g., 24.99%). Interest accrues daily on balances. APY isn’t used for debts; compare cards by APR & fees instead.

Mini Loan Check: What APR means for a payment

Loan amount ($)

APR (%)

Years

Monthly payment: —

Rough estimate assumes monthly compounding using the nominal APR. Actual lender calculations can vary and may include fees.

When To Use APR vs APY

Use APY to compare savings products (HYSA, CDs). It captures compounding and shows the true annual yield.
Use APR to compare debt (credit cards, loans, mortgages). It’s the standardized disclosure and may include certain fees.
Rule of thumb: If money is earning interest → APY. If money is costing you interest → APR.

Project your growth with compounding.
Try our investment calculator to see future value with monthly contributions.
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FAQs

Does a higher APY always mean more money?

All else equal, yes — APY already includes compounding. But watch for promo periods or minimum balance requirements.

Why don’t credit cards show APY?

For debts, regulations standardize on APR. Balances change daily, fees vary, and compounding conventions differ — APR keeps comparisons consistent.

How can APY be higher than APR?

Because earnings compound during the year. For example, 5% APR compounded monthly yields ≈5.12% APY.

What about “APY after fees”?

Some accounts list a net APY after fees. If not shown, subtract recurring account fees from your expected annual earnings to estimate a net yield.