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Annual Percentage Rate Annual Percentage Yield
Definition:Annual Percentage Rate (APR) is an expression of the effective interest rate that the borrower will pay on a loan, taking into account one-time fees and standardizing the way the rate is expressed.Annual Percentage Yield (APY) expresses an annual rate of interest taking into account the effect of compounding, usually for deposit or investment products.
Transaction costs:Transaction costs and fees are taken into account when calculating APR.APY does not take transaction costs into account.

APR (Annual Percentage Rate) and APY (Annual Percentage Yield) are both related to the effective interest rate in financial transactions.

When consumers borrow from a financial institution (for a loan or a mortgage), they pay interest. The term APR is used in such cases when the financial institution lends and the consumer borrows.

APY is an analogous term used when the consumer invests (for example in a time deposit such as a CD or a savings account), the consumer earns interest. The deposit gives an yield on the amount of money invested.

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