APY vs. APR
Navigating the world of personal finance sometimes feels like deciphering a complex code. Two terms that often cause confusion are APY (Annual Percentage Yield) and APR (Annual Percentage Rate). While they might sound similar, they serve very different purposes. Let's break down the differences between APY and APR so you can make informed choices with your money.
APY stands for Annual Percentage Yield. Think of APY as your earnings on savings. APY measures the total interest you earn on a savings account, certificate of deposit, or investment over a year. This shows how your money will increase, including the interest from your initial deposit and over time.
On the other hand, APR, or Annual Percentage Rate, is the cost of borrowing money. The APR is the yearly rate charged for a loan. Whether you're getting a credit card, a mortgage, or a personal loan, knowing the APR will help you compare the total cost of borrowing.
Knowing your account's APY or APR can help you best manage your money. A higher APY is better when comparing savings accounts or investments because it means your money will grow faster. When comparing loans, a lower APR is best because the overall cost of the loan is less. Next time you consider a savings account or a loan, remember APY for your savings superpower and APR to find the best borrowing deal. Happy saving and spending!