APR vs APY: Why the Same Interest Rate Can Mean Two Different Numbers
When a bank advertises a savings account at "3% per year" or a lender quotes a personal loan at "1.5% per month," neither figure tells you the complete cost or return. The gap between the number you see and the number that actually governs your money is explained by two closely related but distinct measures: Annual Percentage Rate (APR) and Annual Percentage Yield (APY). Understanding both — and knowing how to convert between them — is one of the most practically useful skills in personal finance.
What APR and APY Actually Measure
APR is the nominal annual interest rate. It states the periodic rate multiplied by the number of periods in a year, but it does not account for the effect of compounding within that year. It answers the question: "What is the stated annual cost or return, before compounding is applied?"
APY (also called the Effective Annual Rate, or EAR) is the effective annual interest rate. It incorporates the impact of intra-year compounding and answers a more useful question: "What is the actual return or cost over a full year, expressed as a single percentage?"
When interest compounds more than once a year — which is the case for virtually every savings account, credit card, and loan product on the market — APY will always be higher than APR. The more frequently compounding occurs, the wider that gap becomes.
This distinction has real consequences. A savings account with a higher APR but less frequent compounding can deliver a lower actual return than a competing account with a lower APR but daily compounding. Borrowers face the mirror image: a loan quoted at a low APR may carry a higher effective cost than it appears.
The Formulas
APR → APY (Nominal to Effective Rate)
APY → APR (Effective to Nominal Rate)
Variable definitions:
| Variable | Meaning |
|---|---|
| APY | Annual Percentage Yield (effective annual rate), expressed as a decimal |
| APR | Annual Percentage Rate (nominal annual rate), expressed as a decimal |
| n | Number of compounding periods per year (the calculator offers daily = 365, monthly = 12, quarterly = 4 and annual = 1) |
Worked Example: Thai Savings Account
Scenario: a Thai savings account is advertised at 2.40% a year (an APR), with interest compounded monthly. To follow along, enter 2.40 in the calculator and choose APR and Monthly.
Step 1 — Identify variables.
- APR = 0.0240
- n = 12 (monthly compounding)
Step 2 — Apply the APR → APY formula.
Result: APY = 2.4266% (the calculator displays 2.427%)
The actual annual return is 2.43%, not 2.40%. On a ฿500,000 deposit that is ฿12,133 of interest in the first year rather than the ฿12,000 the headline rate suggests. The gap is small here because the rate is low; at credit-card rates it becomes large, as the table below shows.
Reverse conversion — finding APR from APY:
If a fixed deposit account advertises an APY of 2.80% and compounds quarterly:
Result: APR = 2.77% (the calculator displays 2.771%): the nominal rate that, compounded quarterly, produces a 2.80% yield.
How Compounding Frequency Magnifies the Gap
The table below shows how the same 12% APR produces different APY figures depending on compounding frequency — a situation common in consumer credit products across Southeast Asia:
| Compounding Frequency | n | APY (at 12% APR) |
|---|---|---|
| Annual | 1 | 12.000% |
| Quarterly | 4 | 12.551% |
| Monthly | 12 | 12.683% |
| Daily | 365 | 12.747% |
A 12% APR compounded daily costs the borrower 12.747% in effective terms — a difference of 0.747 percentage points that translates directly into additional interest paid.
APR and APY Across Southeast Asian Markets
Thailand
The Bank of Thailand (BOT) requires lenders to disclose the Effective Interest Rate (EIR) — equivalent to APY — on all retail loan products under its consumer protection framework. In practice, most Thai commercial banks (Bangkok Bank, SCB, KBank, Krungthai) advertise deposit accounts using per-annum nominal rates. Borrowers should pay particular attention to personal loan and credit card products, where flat-rate APR structures are common and dramatically understate the effective cost. A "1% per month flat rate" personal loan is not a 12% loan. Repaid in 12 equal monthly instalments, it works out to about 21.5% APR, or roughly 23.7% APY, because you keep paying interest on money you have already repaid.
Vietnam
Vietnamese banks advertise term deposit (tiết kiệm) rates by tenor and compounding convention, which varies by product. The State Bank of Vietnam (SBV) regulates deposit rate ceilings. Consumers comparing products from Techcombank, VPBank, or MB Bank must verify whether quoted rates are pre- or post-compounding. Vietnam's growing fintech lending sector — including peer-to-peer platforms — frequently quotes daily or weekly rates; a 0.05% daily rate compounds to an APY of approximately 20.0%, a figure rarely stated prominently in marketing materials.
Philippines
The Bangko Sentral ng Pilipinas (BSP) mandates disclosure of the Effective Interest Rate (EIR) under BSP Circular No. 730 for all consumer loans. Philippine credit cards commonly carry monthly rates of 2.0% — a figure that converts to an APY of 26.82% under monthly compounding. Consumers comparing home loan offers from BDO, BPI, or Security Bank should always request the EIR disclosure required by law, not rely on the headline rate.
Indonesia
Indonesia's Otoritas Jasa Keuangan (OJK) requires transparent rate disclosure for formal financial products. However, the rapid growth of pinjaman online (online lending) platforms has brought widespread use of daily interest rates. A platform charging 0.8% per day — presented as a small number — produces an APY above 1,700% when compounded daily. OJK has capped fintech lending rates, but consumers must still convert any sub-annual rate to APY before making comparisons.
Practical Rules for Consumers
Always compare on APY
When evaluating savings accounts or fixed deposits, APY is the only apples-to-apples metric. Ignore APR for comparison purposes unless you know the compounding frequency of every product you are evaluating.
For loans and credit, APY reveals true cost
Lenders are incentivised to advertise low nominal rates. Require the effective annual rate in writing, or calculate it yourself using the formula above.
Daily compounding is almost never meaningfully better than monthly
At deposit rates of 2–5%, daily compounding adds only about 0.002 to 0.01 percentage points of APY compared with monthly compounding on the same APR. Do not let it drive your choice on its own.
Flat-rate loans are a special case
Many informal and semi-formal lenders in Southeast Asia quote "flat rates" calculated on the original principal rather than the reducing balance. These require a separate calculation and always produce effective rates significantly higher than they appear.
How to Read Your Comparison
Each result card shows three numbers for one offer:
- APY (the large figure) is the effective annual rate after compounding. This is the number to compare.
- Equivalent APR is the nominal rate that produces that APY at the offer's compounding frequency. If you typed in an APR, it simply repeats your input.
- Annual value at principal is your principal multiplied by the APY: the interest a balance of that size would earn, or be charged, over one year if it stayed the same all year.
The verdict names the offer with the higher effective rate and the yearly gap in dollars. Whether higher is good depends on your side of the deal: savers want the higher APY, borrowers want the lower one. Load Preset A to see it work: the 12-month CD's 5.00% APR, compounded monthly, becomes 5.116% APY, which is $36.62 a year more on $10,000 than the savings account's 4.75% APY. If you enter both offers as the same type (both APR or both APY), the calculator points that out but still compares them, because it converts both to APY first.
Assumptions and Limits
- The rate is treated as fixed for a full year. Introductory rates, balance tiers, fees and tax are not included.
- Daily compounding uses 365 periods a year. A bank that uses a 360-day year, or credits interest less often than it compounds it, can publish an APY that differs in the second or third decimal place.
- The annual value assumes the balance stays the same all year. On a loan you repay in instalments, such as a mortgage or car loan, the balance falls every month, so your real first-year interest is lower. Use the figure to rank offers, not to forecast your bill.
- Flat-rate loans, where interest is charged on the original amount for the whole term, need a different calculation. Entering a flat rate here understates its true cost.
- Rates must be between 0% and 100%.
Frequently Asked Questions
Is a higher APY always better?
Only when you are the one earning the interest. For savings accounts, term deposits and CDs, a higher APY means more money for you. For loans and credit cards, you want the lowest effective rate. Either way, also check fees, lock-in periods and early-withdrawal penalties, which the APY does not capture.
My bank shows a slightly different APY. Which is right?
Small differences usually come from rounding, a 360-day year, or interest being credited less often than it compounds. If the gap is more than a few hundredths of a percentage point, ask the bank how it calculates its APY.
How do I convert a monthly credit card rate?
Multiply the monthly rate by 12 to get the APR, then enter it as an APR with monthly compounding. A card that charges 2% a month has a 24% APR, which the calculator converts to 26.824% APY.
Can I compare an APR offer with an APY offer?
Yes, that is what the calculator is for. Enter each rate as it was quoted, pick its type and compounding frequency, and both are converted to APY before they are compared.
Does the calculator keep what I type?
The calculations run in your browser and nothing is sent to us. If you accept the storage prompt, drafts, templates and recent comparisons are kept in your browser's local storage on your device. If you decline, they last only for the current session.
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Last reviewed September 2026. Rates in the examples and presets are illustrative, not offers from any bank. This page explains how interest rates work; it is not financial advice. How we check our calculations.