APR and APY? After all, what is the difference between them? 😤

Almost every day I come across these financial terms APR and APY, but few explain the difference properly! I'm going to unveil this now because I'm tired of seeing banks and platforms using these terms to confuse us.

APR (Annual Percentage Rate) - The Half Truth

APR is that rate that banks love to show when they want to lend us money. It's basically how much we will pay in interest over a year, calculated only on the principal amount.

The problem? It HIDES the effect of compound interest! It's like that person who only tells half the story. I see this all the time in:

• Credit cards ( where the interest rates are ABSURD)
• Personal loans
• Real estate financing

APY (Annual Percentage Yield) - The Complete Story

The APY is what really matters when we want to know how much our money will earn - or how much we will truly suffer from a debt! It shows the brutal effect of compound interest when calculated multiple times a year.

You know that money sitting in savings? It's with the APY that we know how much it will actually earn (spoiler: almost nothing in traditional banks).

Where the APY appears:

• Bank accounts
• Diverse investments
• Cryptocurrency staking ( that generally yields MUCH more than conventional banks)

The Real Difference 🔥

The difference lies in compound interest! Think of it this way: a card with 15% APR can cost MUCH more if the interest is compounded daily or monthly.

A practical example: if you leave 1000 reais earning 5% simple APR, by the end of the year you will have 1050. But with 5% daily compounded APY, you will have more!

Banks love to talk about APR when they are lending ( it seems lower ) and about APY when they are capturing your money ( it seems higher ). Classic marketing trick!

In real life, always look at the APY when investing and also when taking out loans - it shows the harsh reality. Don't be fooled by the inflated numbers that financial institutions show out there!