Banks want you confused. They advertise APY on savings accounts and APR on credit cards. Same bank, two different measurements. Why? Because APY makes savings returns look bigger, and APR makes borrowing costs look smaller.
The 30-second version
APR = annual rate, no compounding. APY = annual rate with compounding baked in. APY is always equal to or higher than APR.
A real example
My savings account says "5.00% APY." The APR is actually 4.88%. The difference (0.12%) comes from monthly compounding. On $10,000, that's $12 more per year.
$12 isn't life-changing. But on $100,000 it's $120. Over 10 years with monthly deposits, it compounds into real money.
Why credit card APRs are misleading
Credit cards compound daily. A 22.9% APR card has an effective APY of about 25.7%. You're paying interest on interest every single day.
Quick comparison trick
Convert everything to APY. Use our APY calculator to convert any APR instantly.