Short answer
Mortgage APR measures annualized borrowing cost, including interest and other charges; deposit APY measures interest yield with compounding reflected. They answer different questions, not simply the same question with different formulas. The supplied sources establish APY’s compounding treatment but do not establish a universal compounding rule for lending APR. 1 2
On this page
At a glance
Scroll to compare all columns →
| Question or attribute | Annual percentage rate | Annual percentage yield |
|---|---|---|
| Main context here | Mortgage borrowing | Deposit accounts |
| What does it express? | Broader borrowing cost | Interest yield |
| Charges or compounding? | Mortgage points, broker fees, and other charges included | Interest rate and compounding frequency reflected |
| Label caveat | Can also name a deposit interest rate | Defined separately from deposit interest rate |
These distinctions follow the supplied US federal regulation and CFPB mortgage guidance. 1 2
What each thing is
A mortgage interest rate states the yearly percentage cost of borrowing before fees and other charges. Mortgage APR broadens that measure. Deposit APY instead expresses account interest on a standardized 365-day basis using the prescribed calculation rules. Its subject is interest paid on the account, rather than the cost of obtaining a loan. 1 2
Key differences
The important additions differ: mortgage APR incorporates charges beyond interest, while APY incorporates the effect of compounding. A mortgage APR is therefore usually higher than its interest rate. That relationship does not explain deposit APY: there, the relevant distinction is between an interest rate without compounding and a yield reflecting compounding frequency. 1 2
How to tell them apart
Start with the transaction: is the disclosure describing money borrowed or interest paid on a deposit? For mortgages, the supplied CFPB guidance locates the interest rate on Loan Estimate page 1 and APR on page 3. The limit of this rule is terminology: a deposit disclosure can also use APR for its interest rate. 1 2
Where they overlap
Both are percentage measures that make an annual rate meaningful, but the surrounding definitions matter. In deposit disclosures, APR can accompany the term interest rate; that deposit usage does not import the mortgage definition’s points and broker fees. Read the label together with the account or loan being described. 1 2
Edge cases
A deposit account showing both APR and APY is not necessarily mixing borrowing and saving disclosures. Regulation DD permits the noncompounding deposit interest rate to be additionally called APR. Another boundary concerns bonuses: the regulation excludes them from interest, so APY should not be understood as a measure of every promotional benefit. 1
Why the distinction exists
The definitions separate two different informational tasks. Mortgage APR captures borrowing charges that the interest rate leaves out. Deposit APY expresses interest using a common annual period while reflecting compounding frequency. Keeping those tasks separate avoids treating a broader loan-cost measure as if it were a deposit-yield measure. 1 2
Common misconceptions
“APR always means borrowing” is too absolute because Regulation DD permits the label in deposit disclosures. “APY measures every account benefit” also overstates its definition, which concerns interest and excludes bonuses from interest. Nor does the mortgage excerpt say that every conceivable loan expense enters APR; it identifies particular charge categories. 1 2
Examples
Hypothetical mortgage: a loan carries an interest rate plus points and broker fees. APR reflects those charges rather than only the interest rate. Hypothetical deposit: an account quotes an interest rate and compounds interest periodically. APY reflects that compounding frequency; an accompanying deposit APR label may refer to the rate without compounding. 1 2