In very general terms, I always knew the Annual Percentage Rate (APR) and the Annual Percentage Yield (APY) were essentially the same, but there must be some difference. I finally decided to do some research and discovered the below.
| APR | APY | |
|---|---|---|
| Definition | Annual Percentage Rate | Annual Percentage Yield |
| Main Difference | The annual cost of borrowing money that includes fees | The rate at which your deposit account can earn money |
| Account Types |
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| Formula | APR = ( ( ( ( Fees + Interest Paid over Life of Loan ) / Loan Amount ) / Number of Days in Loan Term ) * 365 ) * 100 |
APY = ( 1 + (r/n) )^n – 1
r = annual interest rate
n = the number of times interest compounds per year
|
| Balance | $ | |
| APR (%) | ||
| Days in Month |
| |
| Days in Year |
| |
| Interest Per Day | $ | |
| Interest Per Month | $ | |
| Interest Per Year | $ |
| Balance | $ | |
| APY (%) | ||
|
How much you gain depends on how often the amount compounds
Below you’ll see how much you’ll get at the end of a year (assuming 365 days in a year)
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| Balance Compounded Daily | $ | |
| Balance Compounded Monthly | $ | |
| Balance Compounded Annually | $ | |