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Cash Flow Clarity
APR vs. APY: What's the Difference?
APR measures what you pay to borrow. APY measures what you earn on savings, including compounding.
The two terms sound alike and get confused constantly, but they answer opposite questions. APR is a cost, used for loans and credit cards. APY is a return, used for savings accounts and CDs.
Neither includes compounding the same way. APR is typically the simple annual rate before compounding. APY already has compounding baked in, which is why a savings account's APY is usually slightly higher than its stated interest rate.
The rule of thumb: if a business is charging you, expect APR. If a business is paying you, expect APY.