APR and APY
APR, or Annual Percentage Rate, represents the annual rate charged for earning or borrowing money.
It is usually associated with mortgages and loans.
APY, or Annual Percentage Yield, represents the rate of return earned on a savings deposit or investment.
APR and APY work the same way, but there is a main key difference.
The APY takes into account the compound interest, while APR does not.
Example
A credit card company might charge 1% interest each month. Therefore, the APR equals 12% (1% x 12 months = 12%).
The APY for a 1% rate of interest compounded monthly would be 12.68% [(1 + 0.01)^12 – 1 = 12.68%] a year.