Listed here is another solution to think of it. Say you compare an investment that pays 5% per with one that pays 5% monthly year. The same as the APR for the first, the APY equals 5. But also for the next, the APY is 5.12%, showing the compounding that is monthly.
Considering that an APR and A apy that is different be employed to express the exact same rate of interest, it stands to reason why loan providers and borrowers will stress the more flattering quantity to mention their situation, which is the reason why the facts in Savings Act of 1991 mandated that both APR and APY be disclosed in advertisements, agreements, and agreements.