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What is interest? Your guide to learning APR vs. APY

Get the best deal by knowing the ins and outs of interest rates.

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Some types of interest rates cost you money and some earn you money. Some compound interest and others don’t — and then there’s also fixed vs. variable rates to consider. Knowing the terminology before you choose a new card, loan or account can help you make the best decision.

What’s the difference between APR and APY?

Knowing the meanings of the most common terms you’ll come across when making financial decisions can help you make the most of your money:

  • APR. This is the bad kind of interest. APR stand for annual percentage rate, and it’s the amount of interest you have to pay each year. To save the most money, look for loans and credit cards with a low APR.
  • APY. This is the good kind of interest. APY stands for annual percentage yield, and it’s the amount of interest that gets paid to you each year. To earn the most money, look for savings accounts and investments with a high APY.

What are the different types of interest rates?

There are 2 main types of interest rates — fixed and variable. They can apply to either APR or APY interest rates.

  • Fixed interest rates. This is a set interest rate that is essentially “locked” for the duration of your loan term. The rate you agree to in your loan contract is guaranteed to remain in place until you close the loan at the end of the term.
  • Variable interest rates. This is a rate that may change during your loan term and may be more common in some products than others. For example, personal loans can come with variable interest rates, but it’s unlikely for the rate to change during the loan term. On the other hand, it’s much more likely that a mortgage with a variable rate will change.

How is interest charged on different financial products?

Interest works differently depending on the type of product you have:

Credit cards

Credit cards come with variable, annual interest rates. The rates vary depending on what features the card offers, but the average card falls somewhere between 15% and 22% APR. If you have excellent credit, you can qualify for a lower rate. If you have a low credit score, expect to pay on the higher end of that spectrum — or more.

There are 2 types of interest rates on a credit card: purchase rate and cash advance rate. The purchase rate is what you’re charged to make purchases on the card and the cash advance rate is what you’re charged to withdraw cash using the credit card. Credit cards can also offer special interest rates such as introductory 0% rates or balance transfer rates.

Personal loans

Interest rates on personal loans can be fixed or variable and are annual rates. In the past, these rates reflected the market at the time. However, lenders have been moving towards personalizing interest rates based on how risky it is to offer the loan.

This is why there are now 2 types of interest rates you’ll see advertised for personal loans: set rates and risk-based rates. Set rates will be given to everyone who is approved for a personal loan by that lender. Lenders offering risk-based interest rates will do so using a range — 7% to 18% APR, for example — and your exact rate will depend on your credit score and job stability. You can typically get a rate estimate before applying for a loan.

Mortgages

Mortgage interest rates can also be fixed or variable. Fixed interest rates are guaranteed not to change, whereas variable rates may fluctuate. Variable interest rates can change quite frequently, as they’re heavily influenced by the economy.

The interest you’re charged will generally be calculated daily. Mortgages can either be principal and interest — meaning you’re repaying both the interest you’re being charged and the original amount you borrowed — or interest-only. With the latter, you’re only repaying the interest accruing on your debt.

Savings accounts

Savings accounts work differently from credit accounts because the interest rates earn you money rather than cost you money. All savings accounts come with a variable base rate, with most calculated daily on your principal balance and paid into your account monthly. This is referred to as compound interest: the interest payments you earn then go on to earn their own interest. Guaranteed Investment Certificates (GICs) and other savings options work similarly, though GICs offer fixed interest rates.

Guaranteed Investment Certificates (GICs)

How should I compare interest rates?

Keep the following in mind when comparing interest rates:

  • The actual rate. Look at how competitive the interest rate is when comparing. While the cheapest isn’t necessarily the best, a better interest rate can do a lot to save you money in the long run.
  • Fees. Check for any fees that the account or loan has, including upfront and ongoing fees. If you find an option with a competitive interest rate but sky-high fees, calculate whether it’s still the best option.
  • Apples-to-apples. While comparing interest rates across products is a good idea, make sure the products you’re comparing are similar. For example, you might compare one credit card to another one with a much lower interest rate, but no added benefits or features.

What is a negative interest rate?

Compare interest rates for savings accounts, loans, credit cards and mortgage brokers

1 - 4 of 4
Name Product Interest Rate Promotional Interest Rate Min. Bal / Min. Deposit Account Fee
Simplii High Interest Savings Account
0.10%
N/A
$0 / $0
$0
Pay no monthly or transaction fees and earn interest on every dollar.
KOHO Earn Interest
1.20%
N/A
$0 / $0
$0
Use promo code FINDERCODE and get a $20 cash bonus when you make your first purchase within 30 days. Opt into earning interest for free and earn 1.20% on your balance, plus an additional 0.50% in cash back on every purchase you make.
Neo Money Account
1.45%
N/A
$0 / $0
$0
Get a competitive interest rate and unlimited free transactions with no monthly fees or minimum balances.
EQ Bank Savings Plus Account
1.50%
N/A
$0 / $0
$0
Get a $150 signup bonus when you open an account and switch your eligible recurring payroll direct deposit to EQ. Apply by June 15, 2022. Plus, enjoy zero everyday banking fees, free transactions and no minimum balance.
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1 - 8 of 8
Name Product Interest Rate Loan Amount Loan Term Requirements Link
Loans Canada Personal Loan
Secured from 2.00%, Unsecured from 8.00% to 46.96%
$300 - $50,000
3 - 60 months
Requirements: min. credit score 300
Go to site
More Info
A broker with the largest lender network in Canada. Fill out one application and get matched for free with lenders.
Spring Financial Personal Loan
17.99% - 46.96%
$500 - $15,000
9 - 48 months
Requirements: min. income $1,800/month, 3+ months employed, min. credit score 500
Go to site
More Info
If you're not eligible for an unsecured loan, you may be offered a credit builder loan to help improve your credit score.
SkyCap Financial Personal Loan
12.99% - 39.99%
$500 - $10,000
9 - 36 months
Requirements: min. income $1,200/month, stable employment, min. credit score 550
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More Info
Apply in less than 5 minutes for an unsecured loan and if approved, receive financing in as little as 24 hours.
LoanConnect Personal Loan
Secured from 1.90%, Unsecured 5.75%-46.96%
$500 - $50,000
3 - 120 months
Requirements: min. credit score 300
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More Info
Fill out one application with this broker and get pre-approved by different lenders in 5 minutes.
FlexMoney Personal Loan
18.90% - 46.93%
$500 - $15,000
6 - 60 months
Requirements: min. income $2,000/month, 3+ months employed, min. credit score 500
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More Info
Apply in less than 10 minutes for an unsecured loan and if approved, receive financing in as little as 24 hours. Pay off your loan any time without penalty.
OFFER
Mogo Personal Loan
9.90% - 46.96%
$200 - $35,000
6 - 60 months
Requirements: min. income $13,000/year, min. credit score 500
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More Info
Get a free quote without affecting your credit score and get an unsecured loan the same day. 100-day money-back guarantee: If you're not happy with your loan, pay back the principal and get the 100 days of paid interest and fees back.
Fairstone Unsecured Personal Loan
26.99% - 39.99%
$500 - $25,000
6 - 60 months
Requirements: min. income $1,000/month, min. credit score 525
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More Info
Get a free quote without impacting your credit score. Receive funds for an unsecured loan within as little as 24 hours. No prepayment fees.
SECURED
Fairstone Secured Personal Loan
19.99% - 23.99%
$5,000 - $50,000
36 - 120 months
Requirements: must be a homeowner, min. credit score 560
Go to site
More Info
Use your home equity to get a secured loan with flexible repayment options. Get a free quote without impacting your credit score.
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Name Product Welcome Offer Rewards Purchase Interest Rate Annual Fee Min. Credit Score Description
RBC Cash Back Mastercard
N/A
Up to 2% cash back
19.99%
$0
Min. recommended credit score: 650
Get 2% cash back on grocery store purchases, and up to 1% cash back on all other qualifying purchases and pre-authorized payments.
BMO CashBack Mastercard
5% cash back
Up to 3% cash back
19.99%
$0
Min. recommended credit score: 660
Get 5% cash back on all eligible purchases in the first three months of card membership (up to max. spend of $2,500). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
Scotiabank Passport Visa Infinite Card
35,000 points
Up to 2 points per $1 spent
19.99%
$139
Min. recommended credit score: 750
Earn up to 35,000 bonus Scene+ points in your first year (that’s up to $350 towards travel). Apply by July 4, 2022.
Tangerine World Mastercard
10% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 600
Earn an extra 10% cash back (up to $100) on up to $1,000 of everyday purchases in the first 2 months Until May 31, 2022. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
Simplii Financial Cash Back Visa Card
10% cash back
Up to 4% cash back
9.99% intro APR for the first 6 months, 19.99% thereafter
$0
Min. recommended credit score: 650
Get 10% bonus cash back at eligible restaurants and bars for the first 4 months (up to $500 spend). Plus, get a 9.99% introductory annual interest rate on purchases for the first 6 months.
RBC Avion Visa Infinite
55,000 points
Up to 1 point per $1 spent
19.99%
$120
Min. recommended credit score: 650
Get up to 55,000 Welcome Points. Get 35,000 points on approval and 20,000 bonus points when you spend $5,000 in your first 6 months. Apply by September 16, 2022.
Scotiabank SCENE Visa Card
5,000 points
Up to 5 points per $1 spent
19.99%
$0
Min. recommended credit score: 660
Earn 5,000 bonus Scene+ points when you spend a minimum of $750 on eligible purchases in the first three months as a new SCENE Visa cardholder. Apply by August 31, 2022.
OFFER
Tangerine Money-Back Credit Card
10% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 600
Earn an extra 10% cash back (up to $100) on up to $1,000 of everyday purchases in the first 2 months Until May 31, 2022. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
EXCLUSIVE
Neo Financial Mastercard
Get $25.00
Average 5% cash back
19.99% - 24.99%
$0
Min. recommended credit score: 600
Get $25 when you sign up for the Neo Financial Mastercard. Plus, earn bonuses like 15% cashback on your first purchase at most partners, and earn an average of 5% cashback at thousands of partners and at least 1% cashback guaranteed.
RBC Rewards+ Visa
3,500
Up to 2 points per $1 spent
19.99%
$0
Min. recommended credit score: 650
Earn up to 3,500 RBC Rewards points by going digital in the first 60 days.
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1 - 5 of 5
Name Product Interest Rate (APR) Loan Term Min. credit score Provincial availability
Loans Canada Mortgages
Varies
Varies
400
All of Canada
Loans Canada connects borrowers with a mortgage broker in their area. Bad credit, EI and CERB applicants are considered.
OFFER
Tangerine Mortgages
4.49%
5 Year Fixed Rate
620
All of Canada
Earn a cash bonus of up to $5,000 when you apply for a mortgage before May 31, 2022. Conditions apply.
Meridian Mortgages
4.39%
5 Year Fixed Closed Rate
600
ON
Meridian is a credit union that provides Ontario residents featured rates and the option to defer one payment every 12 months without penalty.
Homewise Mortgages
Varies
Varies
600
Not available in Quebec
Homewise's personal advisors can get you mortgage rates from over 30 banks and lenders.
Breezeful Mortgages
Varies
Varies
600
All of Canada
Breezeful is a 100% online mortgage broker that connects borrowers to competitive rate offers from over 30+ banks and mortgage lenders.
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Bottom line

Before signing any financial agreement, make sure you understand all of its associated terms. Use that knowledge to shop around and find the best deal.

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