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APR is a yearly measure of the cost of consumer credit; APY is a yearly measure of the interest yield on a deposit account that reflects compounding. Use APR to compare credit offers with other credit offers, and APY to compare deposit accounts with other deposit accounts. The two figures describe different things, so they are not interchangeable.
What is the difference between APR and APY?
| Rate | What it measures | Where it applies | What to examine alongside it |
|---|---|---|---|
| APR | The yearly cost of consumer credit, related to the amount and timing of credit received and payments made | Credit products, including loans and certain open-end credit | Fees and finance charges, payment timing, repayment terms, and whether the rate is fixed or variable |
| APY | The annualized interest yield on a deposit account, reflecting the interest rate and compounding frequency | Deposit accounts | Fees, balance requirements or tiers, rate variability, access conditions, and promotional terms |
The U.S. Consumer Financial Protection Bureau (CFPB) defines APR in Regulation Z as “a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made.” Regulation Z § 1026.22 sets out the APR determination for closed-end credit; § 1026.14 covers open-end credit.
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Regulation DD defines APY as “a percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period.” Regulation DD § 1030.2 gives the definition, and Appendix A provides the calculation rules.
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Does APY include compounding?
Yes. APY reflects both the interest rate and how often interest compounds. Compounding means interest already credited to an account can itself earn interest. As a result, APY can be higher than the account’s stated interest rate when interest compounds during the year.
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Regulation DD’s general formula is:
APY = 100 × [(1 + Interest / Principal)(365 / Days in term) − 1]
Here, “Interest” is the interest earned over the term and “Principal” is the amount deposited. For a 365-day term, the formula simplifies to 100 × (Interest / Principal). The calculation generally assumes the principal and interest stay in the account for the full term, with no additional deposits or withdrawals. For accounts without a stated maturity, the rules use an assumed 365-day term. The regulation annualizes APY on a 365-day basis and allows a 366-day basis in a leap year; see the Federal Reserve’s Regulation DD Appendix A.
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How is APR calculated?
APR is a regulatory measure, not simply one universal formula applied to every kind of credit. For closed-end transactions, Regulation Z provides for the actuarial method or the United States Rule method, subject to the regulation’s requirements. When payment intervals are equal, the CFPB’s official interpretation says those methods yield the same APR; the methods can differ in how they handle unpaid accrued interest.
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How should you compare rates?
Comparing credit offers
Compare APRs for credit products on a like-for-like basis, then check the terms that shape what you will actually pay:
- How much credit you receive and when you receive it.
- The amount and timing of required payments.
- Fees and finance charges included in the offer disclosures.
- Whether the rate is fixed or variable, and the terms governing any changes.
APR is useful for understanding and comparing credit costs, but the headline figure does not replace the full repayment schedule or contract terms.
Comparing deposit accounts
Compare APYs for deposit accounts, then check the conditions that affect your return:
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- Whether the APY is variable and how the account’s rate may change.
- Any minimum balance, balance tier, or other qualification for earning the advertised rate.
- Account fees and limits or conditions on accessing your money.
- Promotional bonuses and their eligibility requirements.
APY reflects interest and compounding, not every promotional benefit. Regulation DD’s Appendix A says APY reflects only interest and excludes the value of a bonus or other consideration worth $10 or less that may be provided to open, maintain, increase, or renew an account. Review bonus value and eligibility separately rather than assuming they are part of the APY. The Federal Reserve’s Regulation DD background and summary explains the regulation’s deposit-account disclosure context.
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Can you compare a loan’s APR with a savings account’s APY?
Not as if they were competing versions of the same rate. APR measures the cost of borrowing under credit-disclosure rules; APY measures interest yield under deposit-account rules. They can help you understand different financial decisions, but a direct numerical comparison leaves out product terms, timing, fees, access, and other conditions. For U.S. consumer disclosures, Regulation Z governs the credit context and Regulation DD the deposit-account context; see the CFPB’s Regulation Z overview.
These definitions describe U.S. federal consumer-disclosure rules. Terminology and calculation conventions may differ in other countries or for specialized products. Actual rates and offer terms change, so use the current disclosures for the specific lender or account rather than treating a rate definition as a current market quote.
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