APY vs. APR: What's the Difference?

APY and APR look almost identical, and they both describe interest rates. But they sit on opposite sides of your money. APR is what you pay to borrow. APY is what you earn on savings. Mix them up and you can misjudge both a credit card's true cost and a savings account's true payoff.

Here's the difference between APY and APR, why compounding is the key, how to compare rates fairly, and what makes a good APY.

APY vs. APR: the quick answer

• APR (annual percentage rate) is the yearly cost of borrowing. You'll see it on credit cards, auto loans and mortgages.
• APY (annual percentage yield) is the yearly return on deposits, including the effect of compounding. You'll see it on savings accounts, checking accounts, money market accounts and CDs.

Rule of thumb: when you're borrowing, you want a low APR. When you're saving, you want a high APY.

The key difference: compounding

Compounding means earning (or paying) interest on interest. Each period, the interest gets added to the balance, and the next period's interest is calculated on the bigger number.

APY includes compounding. It tells you what you'd actually earn over a year if you left the money alone.

APR generally doesn't. It's a yearly rate, but it doesn't show the extra cost of interest building on interest.

Example: the same rate, two different numbers

Say a savings account pays a 5.00% interest rate, compounded monthly. The APY is:

• (1 + 0.05 ÷ 12)¹² − 1 ≈ 5.12% APY

That extra 0.12% is compounding at work. On $10,000 over a year, it's the difference between $500 and about $512.

What this means for credit cards

Credit cards work the same way in reverse. Many issuers calculate interest daily and compound it, so the effective cost of carrying a balance is higher than the APR suggests. A card with a 21% APR, compounded daily, works out to an effective annual rate of roughly 23% on a balance you never pay down.

For context, the Federal Reserve's G.19 report showed average credit card rates of roughly 21% across all accounts in 2026. Our guide to what APR on a credit card means walks through the daily math.

APY vs. APR side by side

• Used for: APR for borrowing (cards, loans). APY for saving (deposits).
• Includes compounding: APR, generally no. APY, yes.
• You want it to be: APR, low. APY, high.
• Where you'll see it: APR on card agreements, statements and loan disclosures. APY on deposit rate sheets and account disclosures.

Banks advertise whichever looks better: deposit accounts show APY (the bigger number), and lenders show APR (the smaller one). That's why it pays to know which is which.

How to compare rates fairly

• Compare APY to APY when choosing a savings or checking account. It already accounts for different compounding schedules.
• Compare APR to APR when choosing a card or loan, and check the fees separately.
• Read the fine print on balance tiers. A high APY may apply only up to a certain balance.
• Check the requirements. Some of the highest APYs depend on monthly activity, like a set number of debit card purchases.
• Watch for variable rates. Both APYs and APRs can change.

What is a good APY?

A good APY is one that beats your realistic alternatives for the same money, after accounting for any requirements and balance caps. Rates move with the broader interest rate environment, so a number that's great one year may be ordinary the next.

Some of the highest rates come from high-yield or rewards checking accounts, which pay a premium rate in exchange for monthly activity. For example, Rize Checking from Rize Federal Credit Union pays 7.50% APY on balances up to $10,000, according to its rate sheet effective October 1, 2026, but only when you make five debit card purchases that post during the statement cycle. Balances above $10,000 earn 0.05% APY. Here's the full breakdown: Rize Checking: How to Earn the High Rate With 5 Debit Purchases.

Accounts like this commonly ask for more, often around 12 debit purchases that post within the qualification cycle, and ATM withdrawals and transfers usually don't count. See high-yield checking requirements and what counts as a debit card transaction.

Protect a high APY: never miss the requirement

A high APY with a monthly requirement is only as good as your ability to hit it every month. Miss the debit purchase count once, and you can earn a much lower rate, or nothing, for that cycle.

That's what Credicated's MULTI plan is for. It places a small $0.59 purchase on your debit card on a schedule you choose, so you hit the requirement automatically:

• Every 2 days: up to 15 purchases per month.
• Every 3 days: up to 11 per month.
• Every 4 days: up to 8 per month. A comfortable fit for a 5-purchase requirement.
• Every 14 days: up to 3 per month, as a top-up.

Need a guaranteed 15 a month? Pair an every-2-days plan with an every-14-days plan. Need a purchase every day? Stack two every-2-days plans. See the MULTI plan how-it-works page, and our guide to meeting debit card transaction requirements. Your bank decides what counts, so check your first statement to confirm the charges qualify.

And on the APR side: pay in full

The easiest way to make APR irrelevant is to pay your full statement balance by the due date every month. With a grace period, you generally won't pay interest on purchases at all. Here's how the grace period works.

Frequently asked questions

Is APY or APR better?

Neither is better; they measure different things. As a saver, look for a high APY. As a borrower, look for a low APR.

Why is APY higher than the interest rate?

Because APY includes compounding. The more often interest compounds, the bigger the gap between the stated rate and the APY.

Do credit cards use APY?

No. Credit cards disclose APRs. But because many cards compound interest daily, the effective cost of carrying a balance can be higher than the APR.

What's the difference between APY and dividends at a credit union?

Credit unions often call the interest they pay "dividends," but they still disclose the yearly return as an APY, so you can compare it with bank accounts.

Can my APY change?

Yes, if the account has a variable rate. Many high-yield accounts do, so check the rate sheet periodically.

This article is for general educational purposes and isn't financial advice. Rates are examples from published sources as of 2026 and can change. Credicated is not affiliated with Rize Federal Credit Union or the Federal Reserve.