APY vs APR

APY and APR both describe an annual interest rate, but they account for compounding differently.

APR, or annual percentage rate, is the simple yearly rate. It does not include the effect of compounding.

APY, or annual percentage yield, includes compounding, so it reflects interest earned on interest over a year. Because of that, an APY is higher than the matching APR whenever interest compounds more than once a year.

Lenders and credit products often quote APR, while savings and deposit products often quote APY. When you compare two rates, check that both are quoted the same way, because the same underlying rate can look higher or lower depending on which measure is used. Neither figure is a guarantee of future returns.