Annual Percentage Rate vs Annual Percentage Yield

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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