Savings 101: Understanding APR vs. APY

Based on the APR you might expect to only get charged $120 of interest by the end of the year. But in this example, the interest compounds monthly, meaning each month's interest is calculated based on the original balance and any interest that has accrued so far. So you'd actually get charged $126.83 by the end of the year, hence the 12.68% APY.

Best bet: Compare loan offers based on APR. For instance, 15-year mortgage offers in the New York metropolitan area (found here on BankingMyWay.com.) include a 4.888% APR from HSBC Banks USA (HSBC Quote) and a 5.075% APR from NBT Bank (NBTB Quote) . Meanwhile, it's also okay to compare deposit accounts using APY -- such as 12-month CD offers from Nara Bank (NARA Quote) with a 3.25% APY and Bank of America (BAC Quote) with a 2.0% APY in the same New York area.

For interest rates on mortgages and CDs in your area, enter your ZIP code at BankingMyWay.com.