APY vs APR: Effective Annual Rate Explained
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Editorial verification: Examples on this page are checked against FutureCalc core formulas before publish. Source: cross-checked with OpenStax TVM basics and Investor.gov investing basics.
Definitions
APR is the annual percentage rate before intra-year compounding. APY (or EAR) folds compounding into a single effective yearly yield. Savings pages should emphasize APY; loan shopping often quotes APR — convert before comparing.
Effective annual rate formula
For continuous compounding, EAR = er − 1. Explore frequencies in the compound interest calculator and savings outcomes in the savings growth calculator.
How to compare offers
Convert every quote to EAR/APY, then compare. Excel: =EFFECT(nominal, npery). Loan payment sizing still needs the amortization schedule.