APR vs APY Explained: A Beginner’s Guide to Interest Rates

When navigating the world of finance, understanding the differences between APR and APY can significantly impact your financial decisions. At CCCU, we’re dedicated to helping our members make informed choices. Here’s a beginner’s guide to APR vs APY, so you can make the most of your money.

APR vs APY - Clark County Credit Union in Las Vegas, NV

What is APR?

APR, or Annual Percentage Rate, represents the yearly interest rate charged on loans or earned on investments, excluding compounding. It gives you a straightforward percentage, making it easier to compare different financial products. For example, if you’re taking out a mortgage or applying for a credit card, the APR helps you understand the cost of borrowing over a year. However, it doesn't account for how often interest is applied, which can affect your overall expense.

What is APY?

APY, or Annual Percentage Yield, reflects the total interest earned on an investment or savings account in a year, accounting for compound interest. Compounding occurs when interest is added to the initial principal, and then future interest is calculated on the new total. This means your savings can grow faster. For instance, a savings account with a higher APY will yield more significant returns over time compared to one with a lower APY, even if their interest rates seem similar initially.

Key Differences

APR is straightforward and doesn’t take compounding into account. APY, on the other hand, gives a clearer picture of your potential earnings because it includes compounding. 

Why Does the Interest Rate Matter?

Understanding APR vs APY can help you make better financial decisions. For borrowers, knowing the APR helps estimate the true cost of a loan. For savers and investors, APY is key to maximizing returns.

At CCCU, we prioritize your financial wellness. By understanding these concepts, you can make smarter decisions, whether you're saving for the future or managing debt. Visit https://www.ccculv.org/Rates to learn more about our current deposit rates or call us at 702-228-2228 to hear our current loan offers!