People are often confused about interest rates when they see terms such as APY (annual percentage yield) and APR (annual percentage rate). So, let's clear up the confusion.
You'll typically see one (APR) cited in relation to mortgage loans and the other (APY) in regard to interest-bearing accounts.
Here's the definition for APR from InvestorWords.com: "The yearly cost of a mortgage, including interest, mortgage insurance, and the origination fee (points), expressed as a percentage."
And here's APY's definition: "The effective annual return. The APY is calculated by taking one plus the periodic rate raised to the number of periods in a year. For example, a 1% per month rate would offer an APY of 12.68%."
· 1 decade ago