APR and APY look like the same thing. They are not. Knowing the difference saves real money on loans and earns it on savings.
Ask ten experts and you will get twelve answers. The underlying math, thankfully, only has one. APR and APY look like the same thing. They are not. Knowing the difference saves real money on loans and earns it on savings.
The simple annual rate, ignoring compounding within the year. Loans must disclose APR.
Includes the effect of compounding. Always higher than APR for the same rate.
A 12% APR credit card compounded daily yields ~12.68% APY — that 0.68% is real money on a big balance.
Why don't credit cards advertise APY? Because it would make the true cost look worse — regulators only require APR disclosure.
Do all banks compound daily? No — monthly and quarterly are common. Daily is best for savers.
The math is the easy part. Acting on what it tells you is where the real win lives.