APR vs APY

APR and APY are both important measures of the yield or return on investment. While they are related, they are not the same thing, and understanding the difference between them is crucial for making informed investment decisions.

Annual Percentage Rate (APR)

APR represents the cost of borrowing or the return on investment, expressed as a yearly interest rate. It includes interest, fees, and other costs associated with a loan or financial product.

Calculation

Annual Percentage Yield (APY)

APY represents the actual annualized return on an investment, considering compounding interest. It reflects the total return on an investment, including interest and the effects of compounding.

Calculation