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What is the difference between an APR and APY?

April 26, 2017Apr APY

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What is the difference between an APR and APY?

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The APR is the Annual Percentage Rate or simple interest rate. It assumes the interest will be paid out on a monthly basis. The APY is the Annual Percentage Yield or compounded yield. It assumes the interest is invested back into the CD and then also earns interest. Not all banks will allow the interest to compound. Banks that do, will either compound daily, monthly, quarterly, or semi-annually. There is some risk if you open a $99,000.00 or greater CD and allow the interest to be compounded. If for some reason the bank does close, then any amount over $100,000.00 would be uninsured, thus causing some or all of the interest to be lost.