Annual Percentage Yield (APY)
Also known as: APY, effective annual rate
The annualized return on a savings or investment account that accounts for compound interest. APY measures what you earn on deposits; APR measures what you pay on loans. They are not interchangeable.
Full definition
Annual Percentage Yield (APY) is the real rate of return earned on a savings account, certificate of deposit, or other interest-bearing product after accounting for the effect of compounding. APY is expressed as a percentage and is always higher than the nominal interest rate when compounding occurs more than once per year. Formula: APY = (1 + r/n)^n - 1, where r is the nominal annual interest rate and n is the number of compounding periods per year. A savings account paying 5% nominal interest compounded daily has an APY of approximately 5.13%. APY vs. APR: APY is used for deposit products (savings accounts, CDs, money market accounts) and tells you what you earn. APR is used for borrowing products (personal loans, credit cards, mortgages) and tells you what you pay. Confusing APY and APR is a common consumer mistake. When a bank advertises a 5% APY on savings but an 8% APR on a personal loan, these are measuring different things: the 5% APY is what you earn on deposits, and the 8% APR is what you pay to borrow. Regulatory requirement: Under the Truth in Savings Act, banks must disclose APY on interest-bearing deposit accounts. This makes savings-account rates comparable across institutions. The analogous disclosure requirement for loans is APR under TILA.
- Written by
- Get Advance Loan Editorial Team
- Reviewed by
- Compliance Review
- Published
- January 15, 2026
- Last reviewed
- June 15, 2026
- APR (Annual Percentage Rate)APR is the yearly cost of borrowing, expressed as a percentage of the loan amount. It includes interest plus most lender fees, so it's a more complete measure of cost than the interest rate alone.
- Interest rateThe interest rate is the percentage of the loan balance charged per year as interest, excluding fees. It is a component of, but smaller than, the APR.
- Fixed interest rateA fixed rate stays the same for the entire life of the loan, so the monthly payment never changes. Most U.S. personal loans are fixed-rate.
- Variable interest rateA variable rate can change over the life of the loan, usually tied to an index like the prime rate. Monthly payment can rise or fall.
- Prime rateThe prime rate is the benchmark interest rate U.S. banks publish for their most creditworthy commercial customers. Many consumer rates are quoted as prime + a margin.
- Loan termThe loan term is how long you have to repay the loan, usually expressed in months. Common personal-loan terms are 24, 36, 48, 60, and 72 months.
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