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APR (annual percentage rate) and APY (annual percentage yield) are related but different: APR describes the yearly rate charged on loans or shown for many credit products, often excluding compounding effects; APY expresses the effective annual return on deposit accounts when compounding is included. That means the same nominal rate will produce different APY values depending on compounding frequency. For example, a nominal 5.00% rate compounded monthly yields APY = (1 + 0.05/12)**12 - 1 ≈ 0.05116 or about 5.116% — numerically higher than the 5.00% APR because compounding adds interest on interest. Confusing APR and APY can lead to mistakes: comparing a loan’s APR to a savings account’s APY without adjusting for compounding or fees is not apples-to-apples.

When comparing offers, always check whether the quoted number is APR or APY and what compounding frequency the product uses. Lenders often present APR for loans to show simple annual cost (sometimes including certain fees in the APR), while banks present APY for deposit accounts to show effective yield. If you want to make a fair comparison between two deposit accounts, compare APYs; for loans, use APR or a true total-cost calculation that includes fees and compounding assumptions. The bottom line: APR and APY are not always the same; APY accounts for compounding and will generally be equal to or higher than the APR for the same nominal rate when compounding occurs.

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By Quiz Coins

Trying to time the market is difficult; historically, consistently staying invested has outperformed frequent market timing attempts.

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