The annual percentage yield (APY) tells you how much a deposit earns in a year once compounding is counted. The annual percentage rate (APR) tells you the yearly cost of borrowing, and for most loans it adds certain fees to the interest rate. Use APY to compare savings accounts and CDs, where higher is better. Use APR to compare loans and credit cards, where lower is better. The two numbers are built differently, so never compare an APY with an APR.
What each figure measures
Annual percentage yield. Under the US Truth in Savings rules (Regulation DD), banks calculate APY on the assumption that all principal and interest stay on deposit for the whole term, with no deposits or withdrawals. The figure reflects only interest. It does not include the value of a bonus, and fees are disclosed separately.
Annual percentage rate. The Consumer Financial Protection Bureau (CFPB) describes the APR on an installment loan as the interest rate plus additional fees charged with the loan, such as origination fees. For a mortgage, the CFPB says the APR reflects the interest rate, any points, mortgage broker fees and other charges paid to get the loan. That is why a loan's APR is usually higher than its interest rate.
On a credit card, the APR works differently. Regulation Z says the APR is computed by multiplying the periodic rate by the number of periods in a year. It is a simple annualisation: it does not add compounding.
| APY | APR | |
|---|---|---|
| Used for | Savings accounts, CDs, other deposits | Loans, mortgages, credit cards |
| Includes compounding | Yes | No (periodic rate x periods per year) |
| Includes fees | No (fees disclosed separately) | On installment loans and mortgages, certain lender fees and points |
| Better for you | Higher | Lower |
The formulas
APY from an interest rate
When you know the stated interest rate and how often it compounds:
APY = (1 + r / n)^n − 1
- r = stated annual interest rate, as a decimal
- n = number of compounding periods per year (12 for monthly, 365 for daily)
Citi's savings guide gives this example: a CD at 3% compounded monthly gives (1 + 0.03/12)^12 − 1 = 3.04% APY.
APY as US banks must disclose it
Regulation DD, Appendix A, defines APY from the dollars of interest actually paid on a deposit:
APY = 100 × [(1 + Interest / Principal)^(365 / Days in term) − 1]
The regulation's own example: $1,000 that earns $61.68 over 365 days has an APY of 6.17%. A $1,000 six-month CD that earns $30.37 over 182 days has an APY of 6.18%, because the formula annualises a shorter term as if it were rolled over.
APR on a credit card
APR = periodic rate × number of periods in a year
To go the other way, the CFPB says card issuers that use a daily periodic rate generally find it by dividing the APR by 360 or 365, depending on the issuer.
APY or APR: which figure fits the product you are comparing
Which column fits the product you are comparing: a deposit or a loan?
| Measure | APR | APY | Source |
|---|---|---|---|
| What it measures | Interest and other costs when you borrow money | Interest earned when you save or invest money | Source: APR vs. APY: What’s the Difference? | Capital One (capitalone.com), accessed Oct 17, 2026 |
| Products it covers | Loan products such as mortgages, credit cards or auto loans | Interest-bearing deposit accounts | Source: APY vs. APR: here’s the difference (us.cibc.com), accessed Oct 18, 2026 |
| Compounding | Not stated in the cited sources | Included: APY incorporates compound interest | Source: APR vs. APY: What’s the Difference? | Capital One (capitalone.com), accessed Oct 17, 2026 |
| Which way is better | Lower is better for borrowers | Higher is better for savers | Source: Blog | Financial Planning in the Digital Age (signalfinancialfcu.org), accessed Oct 18, 2026 |
| Can the rate change | Yes | Yes | Source: APR vs. APY: What’s the Difference? | Capital One (capitalone.com), accessed Oct 17, 2026 |
The rows restate definitions from the cited sources and contain no rates, so they show no product's actual yield or cost.
Annual Percentage Yield, or APY, applies to interest-bearing deposit accounts, while Annual Percentage Rate, or APR, pertains to the cost of borrowing money.
Worked example with numbers
The figures below are illustrations, not current market rates.
Savings: same rate, different compounding. Deposit $10,000 at a 4.00% stated interest rate for one year.
| Compounding | APY | Interest after one year |
|---|---|---|
| Annually (n = 1) | 4.00% | $400.00 |
| Quarterly (n = 4) | 4.06% | $406.04 |
| Monthly (n = 12) | 4.07% | $407.42 |
| Daily (n = 365) | 4.08% | $408.08 |
The gap between annual and daily compounding is $8.08 a year on $10,000. APY already folds this in, so two accounts quoting the same APY pay the same yearly interest on the same balance, whatever their compounding schedule.
Credit card: APR understates what an unpaid balance costs. Take a card with a 24% APR and an issuer that divides by 365. The daily periodic rate is 24% / 365 = 0.0658%. The CFPB explains that each day's interest is added to the balance, so interest compounds daily. If a balance sat untouched for a full year with no payments and no new charges, the effective cost would be (1 + 0.24/365)^365 − 1 = 27.11%, about 3.1 percentage points above the quoted APR.
Loan: fees push APR above the interest rate. Borrow $10,000 for one year at 8% interest, repaid in a single payment of $10,800, with a $300 origination fee taken out of the loan amount. You receive $9,700 and pay $1,100 in total charges ($800 interest plus the $300 fee). For this single-payment loan the APR is $1,100 / $9,700 = 11.34%, against an 8% interest rate. This is why the CFPB tells borrowers to compare APRs with APRs, not an APR with another lender's interest rate.
When each figure is misleading
Compounding frequency
APY handles compounding for you. APR does not. A credit card APR is the daily or monthly rate multiplied out, so a balance you carry costs more than the APR suggests, as the 24% example shows. Comparing a savings account's APY with a loan's APR mixes a compounded figure with a simple one.
Fees
APY reflects only interest. A deposit account can quote a strong APY and still charge a monthly maintenance fee, which Regulation DD requires the bank to disclose separately. In the savings example, a $5 monthly fee ($60 a year) cuts $407.42 of interest to $347.42, which is 3.47% of the $10,000 deposit rather than 4.07%.
On the borrowing side, APR includes many lender charges but is not a full cost figure for every product. The CFPB says not to rely on the APR alone when choosing a mortgage.
Variable rates
- Savings. For a variable-rate account, Regulation DD requires the bank to disclose that the interest rate and APY may change. The quoted APY is based on the rate in effect when the account is opened, so it describes today's rate, not a guaranteed year.
- Mortgages. The CFPB says the APR on an adjustable-rate mortgage does not reflect the loan's maximum interest rate, and it advises care when comparing APRs on fixed-rate and adjustable-rate loans.
- Credit cards. A variable APR moves with an index such as the prime rate published in the Wall Street Journal. The CFPB notes that even a fixed APR can change, though the issuer generally must notify you first.
Yield quotes outside regulated deposits
Regulation DD governs APY disclosures by US banks and savings institutions. A crypto staking or lending product that quotes an "APY" or "APR" may use its own assumptions about compounding, fees and how rewards are paid. Read the product's terms to see how the figure is calculated before comparing it with a bank rate.
Which number to use
- Comparing savings accounts, CDs or money market accounts: compare APY, then check the fees.
- Comparing installment loans or mortgages: compare APR with APR, then check whether the rate is fixed or adjustable.
- Carrying a credit card balance: the APR is a floor on the yearly cost, because interest compounds.
This guide follows US disclosure rules (Regulation DD and Regulation Z); terms and calculation rules differ in other countries.
