How is an APY different than an APR. I am getting a 5% APY on savings on an online account. Is there a better option for me where I will need the cash in the near future. I have approx. 7K saved in the savings account with a 5% APY.
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How is an APY different than an APR. I am getting a 5% APY on savings on an online account. Is there a better option for me where I will need the cash in the near future. I have approx. 7K saved in the savings account with a 5% APY.
APR is the RATE the bank pays on the balance for a year, APY is what you YIELD, or what the bank actually pays you. Example, the bank pays you interest at the RATE of 5% per 365 days (year) - APR. The bank deposits one months worth into your account, which makes your balance higher for the next months interest calculation etc so you actually get more then 5% of your $7K - APY. The bank would have to pay about 4.89% for you to YIELD 5%.Quote:
Originally Posted by finseth
Federal Regulations require banks to quote rates in APY terms. APY is usually higher because of compound interest. If a bank did not compound interest, then the APR and APY would be the same.
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