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Here's the 411 on APR and APY

When you see an ad for a loan or for a savings certificate, you've probably noticed the terms "APR" and "APY." But what do they mean?

APR stands for "annual percentage rate." This is the price you pay per dollar, per year for the credit you use. It's a standard measure required by law, and all else being equal, the lower the APR, the better the credit bargain. It helps you sort out loans with different fees and terms by providing an "apples-to-apples" comparison. For example, is a loan with a lower stated interest rate, but high fees, a better deal than one with a higher stated rate and low fees? Because APR calculations account for fees to determine a single rate you can quickly find the answer.

APY is "annual percentage yield" and its disclosure is also required by law. APY is the yardstick for the interest being paid on savings accounts or certificates. The higher the APY, the more money you'll earn on your savings. It, too, helps you make accurate comparisons between savings vehicles.

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