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APR is a yearly measure of the cost of consumer credit; APY is a yearly measure of interest earned on a deposit account that reflects compounding. They describe different sides of money, so an APR on a loan and an APY on a savings account are not directly interchangeable.
What is the difference between APR and APY?
| Term | Used for | What it represents | Compounding treatment |
|---|---|---|---|
| APR (annual percentage rate) | Consumer credit, such as loans and credit accounts | The yearly cost of credit, considering the amount and timing of credit received and payments made | Depends on the credit product and applicable disclosure rules; not every APR is an effective compounded annual rate |
| APY (annual percentage yield) | Deposit accounts, such as savings accounts | The annualized interest earned, based on the interest rate and compounding frequency | Reflects compounding over a 365-day period, subject to regulatory calculation rules |
In the United States, these definitions appear in federal consumer-disclosure regulations. The CFPB describes APR as “a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made” (Regulation Z § 1026.22). Regulation DD defines APY as “a percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period” (§ 1030.2).
How does APR work?
APR gives borrowers a standardized yearly measure of credit cost. For closed-end credit, the calculation relates the amount and timing of the value provided to the consumer to the amount and timing of payments. Regulation Z provides for the actuarial method or the U.S. Rule method, subject to its provisions. When payment intervals are equal, the CFPB’s official interpretation says the two methods produce the same APR; they can differ in how unpaid accrued interest is handled.
Some open-end credit disclosures use a different annualization rule. Where periodic rates are used in the specified disclosures, the corresponding APR is calculated by multiplying the periodic rate by the number of periods in a year (Regulation Z § 1026.14). That rule should not be generalized to every APR calculation. A separate effective APR is permitted in a limited periodic-statement context, so a disclosed APR should not automatically be read as a compounded annual cost.
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How does APY include compounding?
APY turns the interest earned on a deposit into an annualized yield. The result reflects both the account’s interest rate and how often interest compounds. In Regulation DD’s general formula, APY = 100 × [(1 + Interest/Principal)^(365/Days in term) − 1]. For a 365-day term, this simplifies to 100 × (Interest / Principal).
The formula’s assumptions matter: it generally treats principal and interest as remaining in the account for the full term, with no additional deposits or withdrawals. For accounts with no stated maturity, the regulation generally assumes a 365-day term. Appendix A to Regulation DD explains the calculation details (CFPB Appendix A).
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What APR and APY do not tell you
Neither headline rate captures every term that can affect the real cost or return of an account. The applicable disclosures and contract terms matter alongside the rate.
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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Clear out junk files and repair common Windows errorsFree Scan →- For credit: check fees and finance charges, the amount and timing of payments, repayment terms, and whether the rate is fixed or variable.
- For deposits: check fees, minimum-balance requirements and balance tiers, rate variability, access conditions, and promotional terms.
- For deposit bonuses: do not assume the advertised APY includes a qualifying opening bonus. Regulation DD’s APY rule reflects interest, not the value of a bonus or other consideration worth $10 or less; the regulation separately defines a “bonus” as worth more than $10. Review the bonus amount, eligibility, and conditions separately (Federal Reserve Appendix A).
These are product-specific disclosures, not a single complete measure of an offer. Regulation DD’s disclosure framework is intended to help consumers compare deposit accounts (Federal Reserve background and summary).
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Which number should you use to compare offers?
Comparing loans or credit accounts
Compare APRs for credit offers of the same type, then examine the payment schedule, fees, repayment terms, and rate conditions. The applicable APR calculation can depend on whether the credit is closed-end or open-end, so compare the disclosures for the specific products rather than treating every APR as calculated identically. Regulation Z’s scope and disclosure rules are outlined in 12 CFR Part 1026.
Comparing savings or other deposit accounts
Compare APYs for deposit accounts, but also check the balance needed to earn the displayed rate, account fees, access restrictions, rate variability, and any promotional bonus requirements. A headline APY alone may not reflect the return you receive if your balance or account activity differs from the calculation assumptions.
Comparing a loan with a savings account
APR and APY are not an apples-to-apples comparison: one measures credit cost under credit-disclosure rules, while the other annualizes deposit interest under deposit-account rules. To decide whether borrowing or using savings makes sense, consider your actual loan payment obligations and fees alongside the deposit account’s likely earned interest, balance requirements, access needs, and rate conditions.
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1Scan for outdated or missing drivers - takes under a minute2Repair Windows errors before they cause bigger problems3Fix the driver behind crashes, sound loss and screen glitchesThese regulatory definitions describe U.S. consumer credit and deposit-account disclosures. They should not be assumed to apply identically in every country or to every specialized financial product, and actual rates vary by offer and can change.
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