Compare savings and loan rates on the same basis.
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APR is the yearly rate before compounding; APY (also called AER or effective annual rate) is what you actually earn or pay once interest is added to the balance during the year.
The more often interest compounds, the bigger the gap: 5% APR compounded monthly is 5.116% APY.
| Rate | 5% |
| Convert | APR → APY |
| Compounding | Monthly |
| APY (effective annual rate) | 5.1162% |
| Compounding | monthly |
| Difference | 0.1162 percentage points |
5.1162%.
| Rate | 4.5% |
| Convert | APY → APR |
| Compounding | Daily |
| APR (nominal annual rate) | 4.402% |
| Compounding | daily |
| Difference | 0.098 percentage points |
4.402%.
APY includes compounding; APR does not. For savings look at APY, for loans APR (plus fees).
Yes — AER (UK) and EAR are the same idea as APY.
5% APR becomes 5.127% APY with daily compounding, versus 5.116% monthly.
Lenders are required to show APR; the effective rate with monthly compounding is higher.