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 two 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.
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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 two 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. Recently, 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 two 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. Certificates of deposit (CDs) and other savings options work similarly, though CDs offer fixed interest rates.

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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 features.

What is a negative interest rate?

Compare interest rates across loans, credit cards and savings accounts

Name Product Interest rate (APY) Fee Minimum deposit to open
1.90%
$0
$0
Earn 20x the national savings account average with no fees or minimums.
1.75%
$0
$0
Enjoy no monthly fees and a competitive APY with this online-only savings account.
1.50%
$15 per month
(can be waived)
$25
Earn one of the highest annual percentage yields (APYs) if you live in one of 42 eligible states, and access your money by ATM, check or bill pay.
1.85%
$0
$100
A super-high interest rate if you're in the habit of saving at least $100 per month or have $25K in the bank.
Betterment Everyday Savings
Betterment Everyday Savings
1.85%
$0
$10
This savings account has no account and overdraft fees, plus it requires no minimum balance.
0.01%
$5 per month
(can be waived)
$0
Get a $150 bonus when you open a new Chase Savings account, deposit a total of $10,000 or more in new money within 10 business days and maintain a $10,000 balance for 90 days. Or get $350 when you open both a Chase Savings and Chase Total Checking account.

Compare up to 4 providers

Updated November 11th, 2019
Name Product Filter Values APR Min. Credit Score Max. Loan Amount
3.84% to 35.99%
Good to excellent credit
$100,000
Get loan offers from multiple lenders at once without affecting your credit score.
5.95% to 35.99%
Fair to excellent credit
$100,000
Get personalized rates in minutes and then choose a loan offer from several top online lenders.
6.98% to 35.89%
620
$50,000
Affordable loans with two simple repayment terms and no prepayment penalties.
3.99% to 35.99%
450
$100,000
Quickly compare multiple online lenders with competitive rates depending on your credit.
6.49% to 17.99%
650
$25,000
With over 80 years of lending experience, this credit union offers personal loans for a variety of expenses.
34% to 155% (Varies by state)
550
$10,000
Check eligibility in minutes and get a personalized quote without affecting your credit score.
6.95% to 35.89%
640
$40,000
A peer-to-peer lender offering fair rates based on your credit score.
3.84% to 35.99%
550
$100,000
Get connected to competitive loan offers instantly from top online consumer lenders.
5.99% to 17.88%
680
$100,000
No fees. Multiple member perks such as community events and career coaching.

Compare up to 4 providers

Name Product Purchase APR Balance transfer APR Annual fee Filter values
0% intro for the first 15 months (then 14.49% to 25.49% variable)
0% intro for the first 15 months (then 14.49% to 25.49% variable)
$0
Earn a $150 bonus statement credit after you spend $1,000 on purchases in the first 3 months. Rates & fees
0% intro for the first 12 months (then 13.74%, 19.74% or 23.74% variable)
13.74%, 19.74% or 23.74% variable
$0
Earn 20,000 bonus miles once you spend $1,000 on purchases within the first 3 months from account opening.
0% intro for the first 15 months (then 14.49% to 25.49% variable)
0% intro for the first 15 months (then 14.49% to 25.49% variable)
$0
Earn a $150 statement credit after you spend $1,000 or more in purchases with your new card within the first 3 months of card membership. Rates & fees
0% intro for the first 12 months (then 14.49% to 25.49% variable)
0% intro for the first 12 months (then 14.49% to 25.49% variable)
$95
Earn $250 bonus cash back after you spend $1,000 on purchases in the first 3 months. Rates & fees
10.74% variable
N/A
$49
Build or rebuild your credit with this secured card.

Compare up to 4 providers

Name Product Min. credit score State availability Loans offered
620
Not available in: HI, NY
Purchase, Refinance, Jumbo, HELOC, FHA, VA, USDA, Reverse
Loan officers work with you to find the right mortgage to fit your lifestyle and budget.
620
Not available in: HI, MA, NV, NY, ND, UT
Purchase, Refinance, Jumbo, Fixed, Adjustable, FHA, VA, USDA
Explore financing options and home shopping services all on the same website.
620
Available in all states
Purchase, Refinance, Home Equity, HELOC, Jumbo, Reverse, FHA, VA, USDA
Connect with vetted home loan lenders quickly through this online marketplace.
620
Not available in: AZ, HI, IN, MO, NV, NY, RI, UT, WA, WV
Conventional, Refinance, Jumbo, Home Equiity, FHA, VA, USDA
Get personalized rates in minutes and then choose a home loan offer from several top online lenders.
620
Available in all states
Purchase, Refinance, Jumbo, Fixed, Adjustable, FHA, VA, USDA
Flexible options, fast approvals and support online backed by a trusted brand.
620
Available in all states
Purchase, Refinance, Jumbo, FHA
A subsidiary of CIT Group, CIT Bank is a direct lender that offers a variety of mortgage loan options.
620
Available in all states
Purchase, Refinance, Jumbo, FHA, VA, USDA
Streamline your mortgage from quote to final payment — all from your computer or phone.
620
Available in all states
Purchase, Refinance, Jumbo, HELOC, FHA, VA, USDA
A national lender that offers the full selection of mortgage products.

Compare up to 4 providers

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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