APR Versus APY: What’s the Difference?
Whether you are looking for a loan, opening a new account or signing up for a credit card, it’s important to understand the three letters that appear next to your interest rates. By definition, APR refers to Annual Percentage Rate while APY means Annual Percentage Yield. APR and APY are both applied to loans and investment products and will significantly affect how much you must pay or earn when applied to your account balances.
Annual Percentage Rate (APR)
APR is the annual rate of interest paid on a loan account, like a credit card or an auto loan, without taking compound interest into account. The more frequently the rate is applied to your balance, the higher the total amount you’ll pay. Factors that go into calculating APR vary by loan types, so it’s important to know what’s included in the advertised APR for the loan you’re considering.
Annual Percentage Yield (APY)
APY takes into account the frequency with which interest is applied to your balance — the effects of intra-year compounding. This could range anywhere from daily to monthly or annually. The higher the APY, the faster your balance grows. Consequentially, the more frequently your rate compounds, the faster your money grows.
Knowing the difference between these two terms can give you a better idea of just how much your investments earn, or how much interest you pay on loans, over time. When evaluating loans and saving products, compare APY to APY, or APR to APR, and consider the frequency of compounding.
Trust one of the fastest-growing credit unions in North Carolina to save you money and make you money. Bragg Mutual Federal Credit Union offers great rates on both deposits and loans along with HELOC and VISA cards that work for you. For more information about our services, please visit braggmutual.org or call 910-222-1500. We’re committed to helping you build a better future.
*Subject to credit approval. Rates disclosed reflect our best rates and may be different based on credit underwriting or services used. All loan rates are subject to change without prior notice. The information posted here is a service to our members. Although BMFCU strives for information accuracy, we do not guarantee or warrant information posted here.