Financial Accounting Blog

Thursday, June 17, 2004

APR vs. APY. The Motely Fool website explains the difference between APR (annual percentage rate) and APY (annual percentage yield).
"You'll typically see one (APR) cited in relation to mortgage loans and the other (APY) in regard to interest-bearing accounts." defines APR as
"the yearly cost of a mortgage, including interest, mortgage insurance, and the origination fee (points), expressed as a percentage", and APY as "the effective annual return".
The article states that the APY is helpful in that it provides information as to what should be expected from the interest rate, taking into account how often interest is applied. In the end, the more compounded interest the more money you'll get back.