It’s Thursday!
All this rate business on loans and CDs can be confusing! Well, I did some research and found a combination of definitions that I hope will help clarify the difference between APR and APY for you; I know it helped me. J
APR stands for annual percentage rate. APR is used to describe the interest rate for a loan or line of credit applied for an entire year. It does not take compounded interest into account. APR is the rate, not the actual dollar amount of interest. APR refers to the interest rate for a payment period -- usually monthly -- multiplied by how many payment periods there are in a year.
APY stands for annual percentage yield. APY is used to describe how much appreciation interest-bearing accounts and financial instruments like savings accounts and certificates will have over a year. It is the actual amount, expressed as a percentage. Annual percentage yield takes into account the compounded interest. APY standardizes varying interest-rate agreements into an annualized percentage number.
· APR is a better measure of interest rates for debts and loans
· APY is a better measure of interest rates for investments
Most important: when shopping for the lowest rates on a loan or the highest rates on a CD, always compare rates to rates and yields to yields.
If you have any questions or comments, don't hesitate to post below!
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