Money Terms
APR vs APY: What Is the Difference?
By CentralCalc·Updated June 17, 2026·3 min read
APR (Annual Percentage Rate) is what you pay to borrow money; APY (Annual Percentage Yield) is what you earn when you save it. The key technical difference is that APY includes the effect of compounding, while APR typically does not.
Side by side
The catch to watch for
Because APY includes compounding and APR usually does not, you cannot compare a loan’s APR directly against a savings APY. Compare loans to loans by APR, and savings to savings by APY. The simple gut check: with APR you want it low (it is a cost); with APY you want it high (it is a return).
Frequently asked questions
Is APR or APY higher?
For the same nominal rate, APY is slightly higher because it includes compounding. But they are used for different things — APR for what you pay, APY for what you earn — so a direct comparison usually is not meaningful.
Which is better, APR or APY?
Neither is better on its own — it depends which side you are on. When borrowing, you want a low APR. When saving, you want a high APY.
Do credit cards use APR or APY?
Credit cards quote APR — the rate you pay on balances you carry. Savings products quote APY — the rate you earn.
Educational explainer only — not financial advice. Definitions are general; specific rules, rates and figures vary by product and over time. Confirm details with the provider before relying on them.