When comparing financial products, the terms **APY** (Annual Percentage Yield) and **APR** (Annual Percentage Rate) appear frequently. While they sound similar, they represent different calculations of interest that affect your balance sheet.
APR represents the simple interest rate charged on a loan or earned on an investment over one year, excluding compound interest. In contrast, APY takes compounding into account. Because APY factors in the interest earned on interest throughout the year, the APY is always higher than the APR. Understanding this difference is key to maximizing your returns:
- When Saving: Look for the highest **APY**, as this indicates how much your savings will grow once compounding is included. Review our deposit options at our Savings Center.
- When Borrowing: Focus on the **APR**, which reflects the true cost of borrowing, including interest and transaction fees.
By comparing the correct interest metrics, you can make informed decisions. Model your monthly loan service rates using our tools at the Mortgage Center.