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    finseth's Avatar
    finseth Posts: 7, Reputation: 1
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    #1

    Jan 27, 2007, 11:23 AM
    How is an APY different than an APR? Anyone tried the Online Direct Banking accounts?
    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.
    glmccoy2469's Avatar
    glmccoy2469 Posts: 6, Reputation: 1
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    #2

    Feb 11, 2007, 05:37 PM
    Quote Originally Posted by finseth
    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%.
    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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