What is the difference between APY and interest rate?

Also, how does interest rate work, meaning like how long do I have to leave my money in the bank to get that interest?|||Here is an article from investopedia. One (APY) assumes compounding of interest, the other (APR) does not.








Defining APR and APY


APR is the annual rate of interest without taking into account the compounding of interest within that year. Alternatively, APY does take into account the effects of intra-year compounding. This seemingly subtle difference can have important implications for investors and borrowers. Here is a look at the formulas for each method:








For example, a credit card company might charge 1% interest each month; therefore the APR would equal 12% (1% x 12 months = 12%). This differs from APY, which takes into account compound interest. The APY for a 1% rate of interest compounded monthly would be [(1 + 0.01)^12 鈥?1= 12.68%] 12.68% a year. If you only carry a balance on your credit card for one month's period you will be charged the equivalent yearly rate of 12%. However if you carry that balance for the year, your effective interest rate becomes 12.68% as a result of the compounding each month.