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What is the difference between APR and APY?

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The APR rate for a CD is the percentage of interest the customer will earn if the interest paid is out of the CD. The APY is the percentage of interest the customer will earn if they allow the interest to stay in the CD.

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The answer to this question may be found in our Glossary

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When you are looking for a lucrative savings account or any other form of investing, what terms and features do you use as a starting point to compare the offers? I am sure that most people will judge deals by its interest rate. However, these figures can be reflected either as APR (annual percentage rate) or APY (annual percentage yield). What is the difference between them? The secret is in compounding The difference between APR and APY is rather simple. 1. APR, or annual percentage rate, indicates how much interest you will get on an annual basis without taking into account the effects of compounding. This method considers the nominal interest rate, the period or time (in years) and the original balance. For example, you have a $5,000 balance with a 5% APR. In one year, your account would accumulate $5,000 x 5% = $250. Add to this amount your original balance of $5,000 and you will get total of $5,250. However, since APR is usually paid monthly, you will get a bit higher return. It

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Some people may be wondering what the difference between APR and APY is – as some sites will use one and some sites will use the other. The difference is quite simple really, and has to do with compounding. For startes, APR stands for “Annual Percentage Rate” and APY stands for “Annual Percentage Yield”. APR is the actual rate that is offered, but most places will compound your interest at certain intervals. Compounding essentially means adding the interest you’ve earned to your balance, which means the next time interest is calculated, that money will earn you interest as well. APY takes this into account and reflects the rate of return taking into account compounding. For example, if you invest $100 at 10%, compounded monthly, you won’t earn $10 over the course of a year – you’ll earn roughly $10.47, meaning your effective yield was 10.47%. The difference appears to be small, but given a great deal of money and a bit of time, it adds up.

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An understanding of interest rates is fundamental to a person’s ability to manage both debt and savings effectively. Annual percentage rate (APR) and annual percentage yield (APY) are two different ways of advertising the interest rates paid on borrowed money and time deposits, respectively. The difference between the two is mostly a matter of perspective, but certain mathematical nuances should be noted as well. APR is the interest rate that we most often look for when we need to borrow money. This is especially the case with mortgages, since a small difference in APR can make a large difference in the monthly payment, and therefore the money paid over the lifetime of the loan. A borrower will generally choose the lowest APR he can find when looking for a mortgage, an auto loan, or a credit card, and this is a good thing to do. APR does not quite tell the whole story, however, since it is the advertised interest rate, and can be somewhat misleading. For example, mortgage loans are usu

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