The Basics of Interest
Interest is the cost of borrowing money or the reward for lending/investing it. However, the interest number alone doesn't tell the full story without factoring in the compounding calendar.
What is APR?
Annual Percentage Rate (APR) represents the simple interest rate calculated over a year, plus standard fees. It does not account for the compounding of interest within that year.
What is APY?
Annual Percentage Yield (APY) represents the true effective rate of return including compound interest. Because compound interest earns money on top of previously earned interest, APY is always higher than simple APR.
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