APR vs APY Calculator
Banks love to play games with numbers. They show you APY when you're saving (because it looks higher) and APR when you're borrowing (because it looks lower). This calculator cuts through the marketing to show you the real numbers.
Calculator
Results
Comparison
Difference: %
Interest Earned (1 Year): $
Final Balance: $
Because of compounding, a % APR is effectively paying/earning % per year.
APR vs APY: The 1-Minute Guide
If you're confused by APR and APY, you're not alone. Financial institutions often use them interchangeably to confuse consumers, but they measure two very different things.
Practical Tip
"Always ask for the APY when you're taking out a loan. Lenders love to quote the APR because it looks lower, but the APY reveals the true cost of your debt after compound interest does its damage. On a mortgage or car loan, that small difference adds up to thousands of dollars."
What is the difference?
Think of it this way:
- APR (Annual Percentage Rate): This is the simple interest rate. It does not account for compounding. It's like the sticker price on a car before taxes and fees.
- APY (Annual Percentage Yield): This is the real rate. It includes the effect of compounding (interest earning interest). It's the "out-the-door" price.
Common Mistake: Comparing Apples to Oranges
Never compare the APR of one product to the APY of another.
Example: Bank A offers a savings account with 5.00% APR. Bank B offers 5.00%
APY.
Bank A is actually paying you more, because 5.00% APR compounds to roughly
5.12% APY (if compounded monthly).
The Formula
If you want to do the math yourself (or check your bank's work), here is the formula to convert APR to APY:
Where:
- r = The APR (as a decimal, so 5% = 0.05)
- n = The number of times interest is compounded per year (e.g., 12 for monthly)