Answer
APR vs APY: What's the Difference?
APR is what borrowing costs. APY is what saving earns. The difference between them is compounding — and it works for you in one direction and against you in the other.
Updated August 25, 2026 · 3 min read
Money basics (US)
The vocabulary: APR, APY, AER, interest, inflation and the rest.
Financial products are advertised in standardised percentages precisely so they can be compared, and the two you meet most are opposites: APR is the annual cost of borrowing including certain fees, and APY is the annual return on savings including compounding. They are governed by different regulations and are never comparable with each other.
What this section covers
- What each advertised percentage actually includes
- Where a headline rate misleads
- How compounding changes a return
- Working out the cost of a specific deal
Written for the United States. Terminology, protection limits and regulators differ between markets, so a guide from another country will not transfer cleanly.
US money basics guides
Answer
What Is APR? The Real Cost of Borrowing, Explained
APR is the yearly cost of borrowing including certain fees, not just the interest rate. Here is what it covers, what it leaves out, and when it misleads.
Updated August 25, 2026 · 4 min read
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