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APY vs APR - How Do They Differ?


MyMoneyBlog has the best explanation of APY and APR that I've seen. It can help you understand the difference between a 5.00% APY CD and a 5.00% APR CD. Which is better? If both CDs are compounded once a year, the returns would be the same. ING Direct's CDs are like this. However, if the 5% APR CD compounds monthly, $10K would become $10511.62 at the end of a year (5.12% APY). If the 5% APR CD compounds daily, $10K would become $10,512.67 at the end of the year (5.13% APY). The monthly compounding adds $11.62 over the yearly compounding. Increasing the compounding frequency to daily only adds another $1.05 to the yearly interest.
Anonymous   |     |   Comment #1

It's my understanding that if you are depositing or investing money: Look for the highest APR

If you are borrowing money or looking for a credit card:
Look for the lowest APY