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What is the difference between Interest Rate and APY?

Can you explain to me the difference between APR and APY and which one I should care about more? I know that comparing APR and APY to each other is like comparing apples to oranges but I am just not sure the difference.

marked as duplicate by JohnFx, Michael Pryor Aug 12 '10 at 18:31

This question has been asked before and already has an answer. If those answers do not fully address your question, please ask a new question.


Quite simply, APY includes the effect of compounding of interest (interest on your interest) and APR does not. For investments where the interest does not compound, APR and APY should be the same.

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