APY<\/em> = (1 + Periodic Rate) x Number of periods \u2013 1<\/p>\n\n\n\nIn other words, what APY is on a savings account, is essentially the total interest you\u2019ll earn on a deposit account over one year, assuming that no deposits and withdrawals are made.<\/p>\n\n\n\n
APR vs. APY: The Differences<\/h2>\n\n\n\n
Have you ever noticed that you\u2019ve most commonly seen APY mentioned by investment companies and savings account summaries, while credit lenders tend to focus on APR? Once you see the two in practical examples, it becomes easy to see why.<\/p>\n\n\n\n
If you were to borrow $1,000 with an APR of 6%, you would essentially be paying 0.5% interest per month (6% divided by 12). Each month, the interest would be $5, making for an annual interest total of $60.<\/p>\n\n\n\n
Conversely, as per the APY definition in banking, the APY would mean you pay the same $5 in the first payment period. However, in the second month, you would pay 0.5% on the new balance of $1,005. And so on. Over the course of a year, it would mean paying 6.17% in interest. In this example, that\u2019s only an extra $1.68. However, with bigger sums and a more realistic interest rate in mind, it\u2019s easy to appreciate how it can impact every loan.<\/p>\n\n\n\n
Consumers looking at credit cards, loans, and other forms of lending often prefer APR as it delivers a clear bottom-line figure. This makes it very easy to compare financial products from different lenders, but it conceals the compound interest.<\/p>\n\n\n\n
When borrowing money, APY gives you a clearer understanding of what you\u2019ll actually pay compared to the promoted APR. So, it may be the key to avoiding unexpected interest costs over the term of your agreement.<\/p>\n\n\n\n
If you are an investor or lender, though, APY is the only thing you should be concerned with, as you won\u2019t be paying interest – just collecting it.<\/p>\n\n\n\n
APR vs. APY in Crypto<\/h2>\n\n\n\n
In addition to traditional financial products, APR and APY are two tools that are now used by lenders and investors in the crypto arena. They work the same as they do in fiat finances: APR is the interest a trader will pay on a crypto loan over the course of a year, while APY is important for investors, as it represents the return they can expect annually.<\/p>\n\n\n\n
This is because it takes into account the fact that the initial investment is continually re-invested and gives you the compounding results. However, since crypto is extremely volatile, neither figure really tells borrowers or investors much about the future, as the same percentage could equate to wildly different figures in the span of just one year.<\/p>\n\n\n\n
The Final Word On APR vs. APY<\/h2>\n\n\n\n
Both APR and APY are essential terms that relate to interest payments and may subsequently significantly influence your overall repayment obligations on borrowing accounts or the interest gained on investments and savings accounts. <\/p>\n\n\n\n
With a deeper understanding of both terms, making a calculated decision regarding the best financial products for your situation should become a lot simpler – don\u2019t shy away from using an APY calculator, either, as that will give you the most precise numbers you might fumble while doing maths by hand.<\/p>\n","protected":false},"excerpt":{"rendered":"
Looking to borrow money or make an investment? Understanding APR …<\/p>\n
APR vs. APY: The Main Differences<\/span> Read More \u00bb<\/a><\/p>\n","protected":false},"author":17,"featured_media":587,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"","footnotes":""},"categories":[4],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/posts\/586"}],"collection":[{"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/comments?post=586"}],"version-history":[{"count":3,"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/posts\/586\/revisions"}],"predecessor-version":[{"id":3839,"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/posts\/586\/revisions\/3839"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/media\/587"}],"wp:attachment":[{"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/media?parent=586"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/categories?post=586"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.smallbizgenius.net\/wp-json\/wp\/v2\/tags?post=586"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}