APR vs. APY Explained: What's the Real Difference?

Last reviewed: September 2026. This is primarily a math and regulatory-definitions topic, so the core concepts are evergreen — but specific rate figures cited below are dated and will change over time.

APR and APY show up on nearly every loan and savings disclosure you'll ever see, and it's tempting to treat them as two names for the same thing. They're not. They measure different things, they're calculated differently, and they're not meant to be compared to each other. This guide breaks down exactly what each one means, the math behind them, and how to actually use them when comparing offers.

APR vs. APY at a Glance

APR (Annual Percentage Rate) is the annualized cost of borrowing money, shown on credit products like credit cards, mortgages, and auto loans. APY (Annual Percentage Yield) is the annualized rate of return on money in a savings vehicle, shown on deposit accounts like savings accounts and CDs. The core difference: APY explicitly builds in compounding — interest earning interest — while APR, by regulatory design, generally does not.

A few things worth holding onto before going further:

• APR and APY are not interchangeable, and the same nominal rate can produce a different APY depending on how often it compounds.

• Neither number is "better" in the abstract — they answer different questions (cost paid vs. return earned) on different product types.

• A loan's APR should never be directly compared to a savings account's APY. A 22% credit card APR and a 5% savings APY aren't measuring the same thing, and putting them side by side to ask "which is bigger" doesn't tell you anything useful.

• The APR on a loan isn't always identical to the loan's stated "interest rate" — for many loans, especially mortgages, APR folds in certain fees, which can push it above the note rate.

• The APY on a deposit account isn't always identical to its stated interest rate either — APY reflects compounding frequency, so two accounts with the same interest rate but different compounding schedules will show different APYs.

What Is APR?

APR is the annualized cost of borrowing money, expressed as a percentage, used to disclose the cost of credit products so consumers can compare loan offers.

APR is required under the Truth in Lending Act (TILA), implemented through Regulation Z, on covered credit products — credit cards, mortgages, home equity lines of credit, auto loans, personal loans, and student loans. The idea behind it is straightforward: a bare interest rate doesn't tell you the whole cost of a loan, because loans often come with fees. APR is meant to standardize the interest rate and (for many loan types) certain fees into one comparable annual figure.

APR is not a fixed, universal number for a "type" of loan. It varies by lender, your creditworthiness, the loan term, current market conditions, and whether the rate is fixed or variable.

What Is APY?

APY is the annualized rate of return on money in a deposit account, expressed as a percentage, used to disclose the yield on savings products so consumers can compare offers.

APY is required under the Truth in Savings Act (TISA), implemented through Regulation DD, on covered deposit accounts — savings accounts, high-yield savings accounts, money market accounts, and CDs. Unlike APR, APY explicitly builds in the effect of compounding within the year. Once you see a quoted APY, that number already reflects however often the account compounds — you don't need to layer compounding on top of it yourself.

Like APR, APY isn't a fixed, universal figure. As of August 2026, the FDIC reported a national average savings account rate of 0.38% APY — but that's a broad average pulled down by large banks paying very little, and it changes over time as the FDIC updates its weekly national rate data. Individual banks, especially online high-yield savings accounts, routinely pay several times that national average. Any specific rate you see should be checked against the account's current, official disclosure.

The Core Difference: Compounding

This is the single most important distinction to understand, and it's worth stating plainly: APY accounts for compounding; APR, by regulatory definition, generally does not.

Compounding is the process of earning (or owing) interest not just on your original principal, but on previously accumulated interest too. The more frequently interest compounds — daily instead of monthly, monthly instead of annually — the more it adds up over a year, even at the exact same nominal rate.

APY is built specifically to capture that effect for savers. APR, as disclosed on a loan, generally is not — even though many loans, like credit cards, actually do compound daily behind the scenes (more on that below). This is the root of most APR/APY confusion, and it's why the two numbers can't be read the same way.

How APR Works

APR is meant to represent the true annualized cost of borrowing, standardized so you can compare offers apples-to-apples. Under Regulation Z, the APR calculation for many loan types includes the interest rate plus certain finance charges and fees — but exactly which fees are folded in varies by loan type. Mortgage APR calculations commonly include points, origination fees, and mortgage insurance; other consumer loan types vary in what gets captured.

A few mechanics worth knowing:

APR generally doesn't build in intra-year compounding, even though the underlying debt might actually compound more frequently. A credit card is the clearest example: the card's APR is quoted as one annual figure, but interest usually accrues daily against your balance using a daily periodic rate.

Fixed vs. variable APR. A fixed APR stays the same for a stated period. A variable APR can change over time, typically tied to a benchmark index like the prime rate — meaning your rate (and payment, on some products) can rise or fall with market conditions.

Introductory or promotional APR. Offers like "0% APR for 12 months" apply only for the stated window. After that, the standard APR — which can be substantially higher — takes over. A 0% introductory APR also doesn't mean a product is free: annual fees, balance transfer fees, and other charges can still apply.

How APY Works

APY is meant to represent the actual annualized return you'll earn on a deposit, including the effect of compounding. The general relationship: for the same nominal interest rate, more frequent compounding produces a higher APY. Daily compounding beats monthly, which beats quarterly, which beats annual — all else equal.

A few mechanics worth knowing:

APY already includes compounding. Once an account quotes its APY, that figure is the actual annualized return — you don't separately calculate compounding on top of it.

Variable vs. fixed APY. Many savings and money market accounts have variable APY that can move with market conditions or at the institution's discretion. CDs typically lock in a fixed APY for the length of the CD's term.

Introductory or promotional APY. Some accounts offer a bonus APY for new customers or for a limited time. Check what the ongoing rate becomes once the promotional window ends — it's often lower.

The Math: How APY Is Calculated From a Nominal Rate

The standard formula:

APY = (1 + r/n)ⁿ − 1

Where r is the nominal annual interest rate (as a decimal) and n is the number of compounding periods per year.

Here's what's happening conceptually: you're taking the nominal rate, splitting it into n smaller pieces (one per compounding period), applying each piece one at a time so each period's interest is calculated on a slightly larger balance than the last, and then measuring the total annual effect. As n increases — compounding more often — APY increases too, but not without limit. As compounding frequency approaches "continuous" (theoretically infinite times per year), APY approaches a mathematical ceiling for a given nominal rate; it doesn't increase forever.

Illustrative example: a hypothetical 5.00% nominal annual rate at different compounding frequencies

This table uses a hypothetical nominal rate for illustration only — it is not a real advertised rate from any institution.

Notice that the jump from annual to quarterly compounding matters more than the jump from monthly to daily — that's the "approaching a ceiling" effect in action. The nominal rate never changes in this example; only how often it compounds does.

Does APR Account for Compounding?

Directly: generally, no. This is one of the most common points of confusion, so it's worth addressing head-on.

By regulatory definition and common convention, the APR quoted on a loan does not itself factor in intra-year compounding — even when the underlying loan actually compounds more frequently. Most credit card issuers, for example, apply a daily periodic rate (the APR divided by 365) to your outstanding balance every single day. That means interest effectively compounds daily on a carried balance, even though the APR you see quoted is a single annualized number that doesn't advertise that compounding effect.

Illustrative example: a hypothetical credit card balance carried for a year

Say a hypothetical credit card has a 24.00% APR and a cardholder carries a flat $5,000 balance for a full year with no new charges or payments (a simplified scenario for illustration only). A simple, non-compounded read of "24% of $5,000" suggests $1,200 in interest for the year. But because the card actually applies its daily periodic rate (24.00% ÷ 365) to the balance every day, the effective annual cost — accounting for daily compounding — works out to roughly 27.1% on an annualized basis, or about $1,356 in interest for the same $5,000 balance. The quoted APR didn't change; the compounding happening underneath it did.

This is conceptually similar to how APY reflects compounding on the savings side — but it's calculated and disclosed differently, and credit card issuers are not required to advertise this compounded figure the way deposit accounts must advertise APY.

Comparing Loans Using APR

Comparing loan offers by APR is generally more accurate than comparing their bare interest rates, because APR standardizes for certain fees that a plain interest rate leaves out. Two loans with identical interest rates but different fees can have meaningfully different APRs — and the one with the higher APR is generally more expensive overall, assuming similar terms.

That said, APR comparisons have real limits:

• Not every fee a borrower will pay is necessarily captured in a given product's APR calculation — this varies by loan type.

• Loan term (length) affects total cost independent of APR. A lower-APR loan with a much longer term can still cost more in total interest than a higher-APR loan paid off faster.

• Two loans with an identical APR but different fee structures or term lengths can still result in different total costs over the life of the loan.

Illustrative example: how fees affect disclosed APR on a mortgage. Suppose a hypothetical $300,000 mortgage has a note rate of 6.50%, but the borrower pays $3,000 in origination fees and discount points at closing. Because Regulation Z generally requires those fees to be factored into the APR calculation for this loan type, the disclosed APR might come out to approximately 6.65% — higher than the 6.50% note rate, even though the borrower's actual monthly payment is based on the note rate, not the APR. This is a simplified illustration; the actual APR calculation for mortgages follows a standardized amortization-based method, and real figures depend on the specific loan's terms.

Comparing Savings Products Using APY

Comparing savings or CD offers by APY is generally more accurate than comparing bare interest rates, because APY standardizes for compounding frequency. Two accounts advertising the same interest rate but different compounding schedules will show — and pay out — different APYs, and APY is the number that reflects what you'll actually earn.

APY comparisons have limits too:

• APY doesn't capture minimum balance requirements that might be needed to earn the advertised rate.

• Monthly maintenance fees can offset some or all of the interest earned, even on a high-APY account.

• Withdrawal limits or early-withdrawal penalties (common on CDs) aren't reflected in the APY figure itself.

• A high APY might be a short-term promotional rate rather than the account's ongoing rate.

Why the Same Nominal Rate Can Produce Different APYs

As shown in the compounding table above, two accounts can advertise the exact same nominal interest rate and still pay out differently over a year, purely because of how often that rate compounds. An account compounding daily will produce a slightly higher APY than one compounding monthly, which will produce a higher APY than one compounding annually — all from the identical nominal rate.

This is exactly why comparing accounts by their advertised APY, not their nominal interest rate, is the way to make an apples-to-apples comparison. APY has already done the compounding math for you; comparing nominal rates directly ignores that step entirely.

Products That Typically Use APR vs. APY

This split isn't an arbitrary industry choice — it traces directly to two different federal disclosure regimes: the Truth in Lending Act governs credit disclosures (APR), while the Truth in Savings Act governs deposit disclosures (APY).

Variable vs. Fixed Rates, and Introductory Offers

Fixed APR/APY stays the same for a stated period — the term of a CD, or the life of a fixed-rate loan.

Variable APR/APY can change over time, often tied to a benchmark index (like the prime rate for many credit cards) or adjusted at the institution's discretion within regulatory limits.

Introductory or promotional rates apply temporarily. A "0% APR for 12 months" credit card offer, or a bonus APY for opening a new savings account, both revert to a standard rate once the introductory period ends — and that standard rate is what matters for the long run. Always check what rate applies after the promotional window closes before assuming a promotional rate reflects the ongoing cost or yield.

Regulatory Basis: Truth in Lending Act and Truth in Savings Act

The Truth in Lending Act (TILA), implemented through Regulation Z, requires lenders to disclose APR on covered credit products so consumers can compare borrowing costs on a standardized basis. Originally enacted in 1968 and now primarily enforced by the Consumer Financial Protection Bureau (CFPB), TILA doesn't dictate what interest rate a lender must charge — it requires clear, standardized disclosure of the cost so consumers can compare offers.

The Truth in Savings Act (TISA), implemented through Regulation DD, requires depository institutions to disclose APY on covered deposit accounts so consumers can compare savings yields on a standardized basis.

Both are federal disclosure requirements, not guarantees of any particular rate. Specific implementation details have been updated over time and can vary by product — this article describes their general, long-standing purpose as background context, not as a legal reference for a specific situation or dispute.

Common Mistakes

1. Assuming APR and APY are interchangeable terms for the same concept.

2. Comparing a loan's APR directly to a savings account's APY, as if a higher or lower number between the two means something.

3. Assuming a credit card's APR is the only cost of carrying a balance, ignoring daily compounding and any additional fees.

4. Assuming APY is a fixed, permanent rate without checking whether it's variable or a limited-time promotional offer.

5. Comparing two savings accounts by nominal interest rate instead of by APY.

6. Comparing two loans by nominal interest rate instead of by APR.

7. Forgetting that some loan APR calculations exclude real costs — certain mortgage closing costs, for example, may not be captured in every case.

8. Assuming a 0% introductory APR means a product is entirely free of cost.

9. Not checking what rate applies after an introductory period ends, on either a loan or a savings account.

10. Ignoring minimum balance requirements or fees that can offset a high advertised APY.

11. Assuming compounding frequency is too small a difference to matter — it compounds meaningfully over time and on larger balances.

12. Assuming a fixed-rate product's APR or APY can never change — introductory terms and rate reset dates still apply.

13. Not reading the specific compounding disclosure for a given account rather than assuming a standard schedule.

14. Treating APR as if it always includes every fee a borrower will ultimately pay.

15. Assuming a national average rate figure applies to your specific institution or approved rate — actual rates vary widely by lender, account, and creditworthiness.

Common Misconceptions

Myth: APR and APY mean the same thing. Reality: APR measures the cost of borrowing and generally excludes compounding; APY measures the yield on savings and explicitly includes it. Takeaway: Don't use the terms interchangeably — they answer different questions.

Myth: A lower APR always means a cheaper loan overall. Reality: Loan term, which fees are captured in the APR calculation, and total cost over the life of the loan all matter too. Takeaway: APR is a useful comparison tool, not the entire picture.

Myth: A higher APY always means a better savings account. Reality: Fees, minimum balance requirements, and withdrawal restrictions can offset a high advertised APY. Takeaway: Read the full account disclosure, not just the headline rate.

Myth: APR always includes every fee associated with a loan. Reality: Which fees are captured in the APR calculation varies by loan type and lender. Takeaway: Ask specifically which costs are and aren't included in a quoted APR.

Myth: APY is a fixed rate that never changes. Reality: Many savings and money market accounts have variable APY that moves with market conditions; only certain products like CDs typically lock in a fixed rate for a term. Takeaway: Check whether an advertised APY is fixed or variable before assuming it will hold steady.

Myth: A 0% introductory APR credit card has no possible costs. Reality: Annual fees, balance transfer fees, and the standard APR that applies after the introductory period can all still apply. Takeaway: "0% APR" describes one component of cost, not the entire cost of the product.

Myth: Compounding frequency doesn't meaningfully affect how much you earn or owe. Reality: The effect compounds — literally — over time and scales with balance size. Takeaway: On larger balances or over many years, compounding frequency differences add up.

Myth: You can directly compare a loan's APR to a savings account's APY to see which is the "better rate." Reality: They measure fundamentally different things — cost paid vs. yield earned — on different product types. Takeaway: Compare APR only to other APRs, and APY only to other APYs.

Myth: Credit card interest is calculated once a year, like the word "annual" suggests. Reality: Most issuers apply a daily periodic rate to the balance every day, even though APR is quoted as a single annual figure. Takeaway: "Annual" describes how the rate is expressed, not how often interest is actually calculated.

Myth: The interest rate and APR (or interest rate and APY) are always identical numbers. Reality: APR can exceed the note rate once fees are factored in; APY can exceed the nominal rate once compounding is factored in. Takeaway: Always check the specific disclosed APR or APY, not just the stated "rate."

Myth: National average rate figures reflect what any individual borrower or saver will actually get. Reality: National averages are broad benchmarks; actual rates vary significantly by institution, product, and (for loans) creditworthiness. Takeaway: Treat published averages as context, not a personal quote.

Myth: A promotional APY rate will continue at the same level indefinitely. Reality: Promotional rates apply for a limited, stated window before reverting to a standard rate. Takeaway: Check the account disclosure for what happens after the promotional period ends.

Myth: APR and APY are only relevant for large loans or balances. Reality: They apply to any covered credit or deposit product regardless of size, and they still affect smaller balances proportionally. Takeaway: The concepts matter at any balance level, even if the dollar amounts are smaller.

Myth: Rounding differences in compounding calculations are too small to matter over time. Reality: Small differences compound (in both senses of the word) meaningfully over years, especially on larger balances. Takeaway: Don't dismiss a fraction-of-a-percent APY difference as irrelevant for long-term savings.

Myth: Every bank calculates APY the same way regardless of compounding method. Reality: Compounding frequency varies by institution and product, which is exactly why the same nominal rate can produce different APYs at different banks. Takeaway: Compare the disclosed APY itself, not assumptions about how it was calculated.

Which Number Should I Look At? A Quick Framework

The Product Question. Am I evaluating something I'm borrowing (look at APR) or something I'm saving or depositing (look at APY)?

The Compounding Question. If I'm comparing two savings offers, am I comparing their APY — which already accounts for compounding — rather than their nominal interest rate?

The Fees Question. If I'm comparing two loan offers, am I comparing their APR — which folds in certain fees — rather than just the note or interest rate, and have I checked which fees are and aren't included?

The Duration Question. Is the rate I'm looking at fixed for the life of the product, or is it introductory or variable and subject to change?

If any answer is uncertain, check the product's official Truth in Lending disclosure (for credit) or account disclosure (for deposits) before deciding.

Glossary

APR (Annual Percentage Rate) — The annualized cost of borrowing, disclosed on credit products under the Truth in Lending Act; for many loan types it includes certain fees, but generally does not factor in intra-year compounding.

APY (Annual Percentage Yield) — The annualized rate of return on a deposit account, disclosed under the Truth in Savings Act; it explicitly accounts for compounding.

Nominal interest rate — The stated, "base" interest rate before compounding or fees are factored in.

Compounding — Calculating interest on both the original principal and previously accumulated interest.

Compounding frequency — How often interest compounds within a year (e.g., daily, monthly, quarterly, annually); higher frequency produces a higher APY for the same nominal rate.

Effective Annual Rate (EAR) — The general financial concept of an annualized rate that accounts for compounding; APY is the regulatorily defined, consumer-banking-specific version of this concept.

Daily periodic rate — A loan's APR divided by 365, applied to the outstanding balance each day — commonly used by credit card issuers.

Finance charge — The dollar cost of credit, including interest and certain fees, used in calculating APR.

Principal — The original amount borrowed or deposited, before interest.

Fixed rate — A rate that stays the same for a stated period.

Variable rate — A rate that can change over time, often tied to a benchmark index.

Introductory/promotional rate — A temporary rate offered for a limited period before reverting to a standard rate.

Truth in Lending Act (TILA) — The federal law requiring standardized disclosure of credit costs, including APR.

Regulation Z — The regulation implementing TILA.

Truth in Savings Act (TISA) — The federal law requiring standardized disclosure of deposit account yields, including APY.

Regulation DD — The regulation implementing TISA.

Origination fee — A fee a lender charges for processing a new loan, which can be factored into APR.

Points (mortgage) — Upfront fees paid to reduce a mortgage's interest rate, which can be factored into APR.

Certificate of deposit (CD) — A deposit account that holds a fixed sum for a set term at a typically fixed APY, with penalties for early withdrawal.

Money market account — A deposit account that often pays a variable APY and may offer limited check-writing or debit access.

High-yield savings account — A savings account, often from an online bank, that pays a meaningfully higher APY than a standard savings account.

Frequently Asked Questions

What is APR? APR (Annual Percentage Rate) is the annualized cost of borrowing money, expressed as a percentage. It's disclosed on credit products like credit cards, mortgages, and auto loans under the Truth in Lending Act, and for many loan types it includes certain fees in addition to the base interest rate. It generally does not factor in intra-year compounding.

What is APY? APY (Annual Percentage Yield) is the annualized rate of return on money in a deposit account, expressed as a percentage. It's disclosed on savings accounts, money market accounts, and CDs under the Truth in Savings Act, and it explicitly accounts for the effect of compounding within the year.

What's the difference between APR and APY? APR measures the cost of borrowing and generally excludes compounding; APY measures the yield on savings and explicitly includes compounding. They also apply to different product types under different federal disclosure laws, and they aren't meant to be compared to each other directly.

Is APR the same as interest rate? Not always. For many loans, APR includes the interest rate plus certain fees (like origination fees or mortgage points), which can make APR higher than the loan's stated note rate. Which fees are included varies by loan type.

Is APY the same as interest rate? Not always. APY reflects the interest rate plus the effect of compounding, so an account's APY is typically equal to or higher than its stated nominal interest rate, depending on how often that rate compounds.

How is APY calculated? APY is calculated using the formula APY = (1 + r/n)ⁿ − 1, where r is the nominal annual interest rate and n is the number of compounding periods per year. More frequent compounding produces a higher APY for the same nominal rate, though the increase levels off as compounding frequency gets very high.

How is APR calculated? APR calculations vary by loan type but generally combine the interest rate with certain fees and finance charges required to be disclosed under Regulation Z, standardized into one annualized percentage. Exactly which fees are included depends on the specific loan product.

Does APR include compounding? Generally, no. By regulatory definition, the APR quoted on a loan typically does not build in intra-year compounding, even though some loans — like credit cards — actually compound interest daily behind the scenes using a daily periodic rate.

Why is APY higher than the interest rate? APY is higher than the nominal interest rate whenever interest compounds more than once a year, because each compounding period earns interest on previously accumulated interest, not just the original principal.

Why can APR be higher than the interest rate on a loan? For loan types where certain fees (like origination fees or mortgage points) are factored into the APR calculation, those added costs push the disclosed APR above the loan's stated note rate.

Does APR include fees? For many loan types, yes — commonly origination fees, discount points, and mortgage insurance on mortgages. But which specific fees are included varies by loan type and lender, so it's worth confirming for any specific loan.

Which is higher, APR or APY? Neither is inherently higher — they apply to different product types (borrowing vs. saving) and aren't measuring the same thing. Comparing a specific loan's APR to a specific savings account's APY as if one number should be bigger doesn't produce a meaningful conclusion.

Can you compare a loan's APR to a savings account's APY? Not meaningfully. APR measures the cost of credit; APY measures the yield on savings. They're calculated differently, disclosed under different regulations, and apply to fundamentally different financial products.

What is compounding interest and how does it affect APY? Compounding is calculating interest on both the original principal and any interest already earned. The more frequently interest compounds within a year, the higher the resulting APY will be for the same nominal interest rate.

How does compounding frequency change APY (daily vs. monthly vs. annually)? For the same nominal rate, daily compounding produces a slightly higher APY than monthly compounding, which produces a higher APY than annual compounding — though the differences shrink as frequency increases, since APY approaches a mathematical ceiling rather than rising without limit.

What is a variable APR? A variable APR can change over time, typically because it's tied to a benchmark index like the prime rate. As the index moves, the APR — and potentially the borrower's payment — can move with it, within any limits set by the loan agreement.

What is an introductory or promotional APR/APY? It's a temporary rate offered for a limited period — such as 0% APR for 12 months on a credit card, or a bonus APY for opening a new savings account — that reverts to a standard rate once the introductory window ends.

What is a 0% APR credit card and how does it work? It's a card (or promotional offer on a card) that charges no interest on qualifying balances for a stated introductory period. After that period ends, the card's standard APR applies to any remaining balance, and other fees (annual fees, balance transfer fees) may still apply throughout.

What is Regulation Z / the Truth in Lending Act? The Truth in Lending Act is a federal law requiring standardized disclosure of credit costs, including APR, so consumers can compare loan offers. Regulation Z is the regulation that implements it and is primarily enforced by the Consumer Financial Protection Bureau.

What is Regulation DD / the Truth in Savings Act? The Truth in Savings Act is a federal law requiring depository institutions to disclose standardized yield information, including APY, on deposit accounts so consumers can compare savings offers. Regulation DD is the regulation that implements it.

Why do credit cards and loans show APR while savings accounts show APY? Because they're governed by two different federal disclosure laws: the Truth in Lending Act requires APR on credit products, and the Truth in Savings Act requires APY on deposit products. The split reflects different regulatory regimes, not an arbitrary industry choice.

How do I compare two loan offers using APR? Compare the disclosed APR on each offer rather than the bare interest rate, since APR standardizes for certain fees. Also check the loan term and confirm which fees are and aren't included in each APR calculation, since identical APRs with different terms can still result in different total costs.

How do I compare two savings accounts using APY? Compare the disclosed APY on each account rather than the nominal interest rate, since APY standardizes for compounding frequency. Also check for minimum balance requirements, monthly fees, and whether the rate is promotional or ongoing.

What is the effective annual rate (EAR) and how does it relate to APY? EAR is the general financial concept of an annualized rate that accounts for compounding. APY is essentially the consumer-banking, regulatorily defined implementation of that same concept, specifically for deposit account disclosures.

Does credit card interest compound daily even though APR is an annual number? Typically, yes. Most credit card issuers apply a daily periodic rate (the APR divided by 365) to the outstanding balance every day, so interest effectively compounds daily even though the APR itself is quoted as one annual figure.

What is a daily periodic rate? It's a loan's APR divided by 365, used by many credit card issuers to calculate the interest charged on a balance each day. Applying this rate daily is what causes daily compounding on carried credit card balances.

Is a higher APY always a better deal on a savings account? Not necessarily. A high APY can be offset by monthly fees, minimum balance requirements, withdrawal restrictions, or a promotional rate that drops after a limited time. It's worth reading the full account disclosure, not just the headline APY.

Sources

• Consumer Financial Protection Bureau (CFPB) — Truth in Lending Act (Regulation Z) consumer guidance and APR disclosure requirements

• Federal Reserve / Regulation DD — Truth in Savings Act consumer guidance and APY disclosure requirements

• Federal Deposit Insurance Corporation (FDIC) — National Rates and Rate Caps report, August 2026 (national average savings account rate)

• National Credit Union Administration (NCUA) — Truth in Lending Act / Regulation Z compliance guidance

• Federal Trade Commission (FTC) — general consumer credit education resources

Conclusion

APR measures the annualized cost of borrowing; APY measures the annualized yield on savings. They're not interchangeable, and they're not meant to be compared to each other. The defining mathematical difference is compounding: APY builds it in by design, while APR generally does not, even when the underlying loan — like a credit card balance — actually compounds daily behind the scenes.

The same nominal rate can produce different APYs depending on compounding frequency, just as the same note rate can produce a different APR depending on which fees get folded into the calculation. Comparing loans by APR and comparing savings products by APY is more accurate than comparing bare interest rates — but neither number tells the whole story on its own. Fees, terms, withdrawal restrictions, and whether a rate is promotional all still matter. Reading the actual disclosure — the Truth in Lending statement for a loan, the account disclosure for a deposit product — is what turns these two percentages from a source of confusion into a genuinely useful comparison tool.