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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.


1 Answer 1


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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