APR vs APY—What's the Difference?

December 20, 2023

Whether you’re saving money or borrowing it, you’ll probably hear the terms APR and APY. While they have some similarities, they apply to very different things.

APY is annual percentage yield and refers to the amount you’ll earn on money that you save or invest over time. It includes compounding, which periodically adds the interest you earn into the amount on which future interest is calculated. The more frequent the compounding, the faster you’ll earn money. Interest can compound daily, monthly, or annually. The higher the APY, the better for you.

APR is an annual percentage rate. It applies to borrowing money, whether it’s a loan or credit card balance. The APR reflects the basic interest rate on the loan, plus additional repayment costs to you, such as certain fees. The APR tells you how much you’ll pay to borrow the money, figured across an entire year. This gives you a more complete picture of what you’ll end up paying over the life of the loan. The higher the APR, the more you’ll have to pay in interest.

So, if you’re comparing savings accounts or investment vehicles, you’ll want to compare the APY. This will tell you which type will help you earn the most amount of money.

If you’re planning to take out a loan or comparing credit cards, you’ll want to look closely at the APR to find the best rate for your needs.

While this can be confusing, you can find calculators online that will show you how interest rates and compounding affect your money to help you make the best choice.

On the topic of APY's, Iowa State Bank is currently offering a 5.00% APY* on 5-8 month Pick Your Term Certificates of Deposit. It's a great opportunity to SAFELY grow your money by opening a new CD or reinvesting your old one.

Call 515-288-0111 today and talk to one of our Intelligent, Sophisticated Bankers about taking advantage of this limited time offer.

_{*The information above is accurate as of October 16th, 2023. Interest Rates may change after an account is opened and these rates will be posted as of their effective date. Maintenance and / or activity fees may reduce earnings. APY = Annual Percentage Yield. The Annual Percentage Yield (APY) assumes interest remains on deposit until maturity. A withdrawal of interest or any withdrawal may reduce earnings and a penalty may be applied on some accounts for early withdrawals. A $5,000 minimum balance is required to open CD. Interest Rates subject to change daily. Talk to a banker for more details.}