APR versus APY, what’s the difference

APR and APY sound like the same thing, but they are not. APR, or Annual Percentage Rate and APY, and APY, or Annual Percentage Yield, result in different monthly interest payments. APR is what you pay the bank and APY is what the bank pays you-and APR is more beneficial in all instances. APR is simple interest, what is paid over a year, divided by the number of days in a period. APY, on the other hand, imagines that all of the interest accrued over a year is kept in the bank account, and includes interest earned on interest in calculating an annual percentage yield. Established by the Truth in Savings Act of 1991, and further defined in Regulation DD, APY was intended to allow consumers to comparison shop among depository accounts. APY may accomplish this task, but requiring banks to use APR for both loans and depository accounts would make things much more clear for consumers. But the maintenance of two interest rate definitions likely is an example of the golden rule, those who have the gold make the rules. The banking industry reportedly donated almost $60 million to politicians in 2022, and it appears the politicians reward the industry with laws and regulations that favor bankers.