Definition
APR (annual percentage rate) is a yearly rate without the effect of compounding, and for loans it can include some fees. APY (annual percentage yield) includes compounding, showing what you actually earn in a year.
The story
A savings account paying 5% compounded monthly has an APY of about 5.12%, because each month's interest starts earning interest too. Lenders tend to advertise APR on loans and banks advertise APY on savings, so compare like with like.
Why markets watch it
Comparing rates fairly means knowing which one you're looking at.
See it in the story
Connects to
Compound interestInterest rateCredit card interestHigh-yield savings
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms