APY vs. APR, explained: why your savings account shows one rate and your credit card shows the other

They look like the same idea in different clothes: a percentage, followed by "annual," describing what a bank pays you or charges you. They're not interchangeable. One is a deposit-account disclosure built to reflect compounding; the other is a credit disclosure built to reflect the cost of borrowing. Mixing them up — or assuming a "rate" on one product means the same thing as a "rate" on another — can make an account look better, or a loan look cheaper, than it actually is.

What APY actually is

Annual percentage yield (APY) is a defined term under Regulation DD, the rule implementing the Truth in Savings Act. Per the CFPB's own regulation text, APY is "a percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period," calculated according to a specific formula the regulation spells out. That formula — from Appendix A to Regulation DD — is:

APY = 100 × [(1 + Interest ÷ Principal)^(365 ÷ Days in term) − 1]

The point of standardizing it this way is comparability: no matter how a bank structures its compounding, the disclosed APY is calculated the same way for every account, so you can put two banks' numbers side by side and trust they mean the same thing.

What APR actually is — and why it's a different calculation

Annual percentage rate (APR) is a separate defined term, this one under Regulation Z, which implements the Truth in Lending Act. Per the CFPB, APR is "a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made." It's built for loans and credit — mortgages, auto loans, credit cards — not deposit accounts, and Regulation Z sets its own calculation rules and accuracy tolerances for it, separate from the APY formula above. We've covered what Regulation Z actually requires lenders to disclose in more depth elsewhere; the short version here is that APR and APY are answers to two different questions — "what does this credit cost me" versus "what does this deposit account pay me" — calculated under two different regulations, for two different product categories. Neither number substitutes for the other.

Why the same stated rate can produce different APYs

Here's a hypothetical, not a real account: say a bank pays a 5.00% stated interest rate on a savings account. Run that 5.00% through the CFPB's APY formula at three different compounding frequencies, and you get three different numbers:

• Compounded annually (once a year): APY = 5.00% — identical to the stated rate, because there's no compounding within the year to add.
• Compounded monthly: APY ≈ 5.12%.
• Compounded daily: APY ≈ 5.13%.

Same 5.00% stated rate, three different actual yields — because compounding means interest earned early in the year gets added to the balance and starts earning its own interest before the year is out. The more often that happens, the higher the APY climbs above the stated rate. That's also why the gap between daily and monthly compounding here is small (about one-hundredth of a percentage point): compounding frequency matters, but far less than the stated rate itself.

Why this is what Regulation DD requires banks to disclose

Because the stated interest rate alone doesn't tell you how often it compounds, two banks advertising the identical "5.00% rate" could pay meaningfully different amounts depending on their compounding schedule. Requiring the APY — a single, standardized number that already accounts for compounding — is what lets you compare accounts without doing the math above yourself. Per the CFPB's rule, institutions must disclose the APY, using that term, before an account is opened and whenever a consumer asks about rates, and it must be rounded to the nearest 0.01% under the regulation's own precision requirement.

What to actually compare when rate-shopping

Compare the APY, not the stated interest rate, across every offer you're considering — that's the number that already reflects each bank's own compounding schedule and lets you compare on equal terms. For a sense of scale, per the FDIC's National Rates and Rate Caps report, the national average APY on savings accounts was 0.37% as of September 21, 2026, reflecting deposit-weighted data through the last business day of August 2026. That average includes plenty of accounts paying close to nothing, so it's a floor to measure against, not a ceiling — but treat any specific bank's advertised APY as something to confirm directly on that bank's own disclosure, not something to take from a third-party ranking. As our coverage of the Fed's September 2026 rate decision noted, banks set deposit rates independently and adjust them on their own timeline — so the accurate number is always the one currently disclosed by the institution itself.

What this isn't

This explains how APY and APR are defined and calculated under Regulation DD and Regulation Z — not a projection of what any specific account will pay, or advice to open one. Compounding math above is illustrative, using a round hypothetical rate, not a real product's terms. For your own accounts, the institution's current disclosure is the only accurate source of the actual number.

Where this fits

The same distinction shows up in how the FDIC insures your deposits — a different question (what's protected if a bank fails) from what a bank pays you while it's open, but they're both terms with precise regulatory definitions that get flattened in casual conversation. If you're comparing the cost of credit instead of the yield on a deposit, our breakdown of what Regulation Z actually requires lenders to disclose covers the APR side of this same pattern: a standardized number that exists specifically so you don't have to trust a marketing rate at face value.