APR vs APY: Why Banks Quote One and Not the Other

By Alamzeb Khan · Updated August 2026 · 5 min read · Compound Interest Calculator →

The two numbers side by side

The pattern is easy to remember: each product is quoted with the number that flatters it.

Savings adverts use APY, because compounding makes it bigger. Loan paperwork uses APR, because leaving compounding out makes it smaller.

Both are standard, legal figures. You just need to know which one you are looking at.

Converting between them

APY = (1 + APR ÷ n)ⁿ − 1

Here n is how many times a year it compounds. On a 5% APR:

The gaps look tiny at 5%. They stop looking tiny at card rates.

Where it costs you real money

A card advertising 24% APR compounds daily. Run the same conversion and it works out at 27.11% over a year on a balance you carry.

On $5,000 that is the difference between $1,200 and $1,355 of interest in a year - about $155 the smaller label quietly leaves out. Across several years of carrying a balance, the choice of label is worth real money to the lender.

It also explains something useful: paying part-way through the month helps. Because interest is worked out daily, every day your balance is lower reduces that month’s charge. You do not have to wait for the statement date.

Comparing savings accounts

On the savings side APY is the honest number - it is what you actually earn if you leave the money alone for a year.

Two rules cover it:

1. Compare on APY alone. How often it compounds is already inside the figure. A 4.6% APY beats a 4.5% APY, whatever the compounding schedules say.
2. Put APY into projections. The compound interest and savings goal calculators expect the APY your bank quotes. No conversion needed.

Why loan APR includes fees

Loan APR includes most fees you must pay - origination, points, some closing costs - which is why it comes out higher than the bare interest rate on the same loan.

That is what makes it the right number for comparing offers. A low rate with heavy fees can be worse than a higher rate with none, and only the APR shows it. This is exactly the trap in the personal loan guide, where a 12% loan with a 5% fee really costs 14.78%.

The rule in one line

Borrowing? Compare APRs. Saving? Compare APYs. Never mix them.

What the gaps are worth

On savings, $10,000 left alone for ten years:

• At 0.4% → about $10,407.
• At 4.5% → about $15,530.

On borrowing, $12,000 over three years:

• At 11%, the payment is $392.86 and the interest is $2,143.
• At 24%, the payment is $470.79 and the interest is $4,949.

Same debt, same three years, $2,806 apart. That gap is the whole argument for moving high-rate card balances onto something cheaper.

Common questions about compound interest