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What's the Difference Between APR and APY?

Authored By: MIT FCU

In the world of personal finance, acronyms like APR and APY often float around, leaving many scratching their heads. But don’t worry - these terms are not as complicated as they might seem at first glance. Whether you're looking to borrow money or grow your savings, these concepts play a crucial role in determining the best options for your financial journey. 

 

a·p·r
[ ey pee ahr ]

noun

  1. Annual Percentage Rate is the measurement of the total yearly cost of borrowing money, expressed as a percentage. It includes additional fees and charges imposed by the lender.

APR is a key term to know when it comes to borrowing money. It's essentially the total cost of borrowing, including interest and fees, over a year. Think of it like the price tag on a loan. Understanding APR helps you compare different loan options and make informed decisions about what works best for you. Plus, knowing your APR can help you plan your finances more effectively, so you can focus on achieving your goals without any financial surprises. It's all about being in control and making smart choices!

 


a·p·y
[ ey pee wahy ]

noun

  1. Annual Percentage Yield is the total amount of interest earned on an account over one year, taking into account the effects of compound interest

APY is the rate of return you earn on your deposits over a year, taking into account compounding interest. Think of it like a magic multiplier that helps your money grow faster. The higher the APY, the more your savings will flourish. So, when you're choosing where to stash your cash, look for accounts with a high APY to maximize your earnings like MIT FCU’s High Yield Money Market.

 

In conclusion, APR and APY are more than just financial jargon – they're powerful tools that can help you navigate the complex world of borrowing and saving. By familiarizing yourself with these terms and actively seeking out the best rates, you're taking a significant step towards financial literacy and independence while making choices that will set you up for long-term success.



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