Please post about the following link on APY and APR by Sunday night (10/2/11). We are asking you to post your short blog (75-150 words) by Sunday night because APY is a concept you should understand for the test that you will be taking Monday night.
Use the following link and read the article:
http://www.investopedia.com/articles/basics/04/102904.asp#axzz1ZBF2kbsj
This article puts into perspective the subtle, but rather important difference between Annual Percentage Rate (APR) and Annual Percentage Yield (APY). The question that I am left with after reading the article is regarding the legality of the whole situation. I don’t understand how it is ethical or better yet legal to “disguise” an interest rate amount to a potential investor or borrower. If a bank quotes APR for loans and know that they will be charging the APY, how are they allowed to do this? In comparison, banks will quote APY for savings accounts, but only give the interest gained through the APR. In the end, I suppose I am confused as to how banks get away with this action.
ReplyDeleteThis article helps to break down the effects of APR to APY. When I first got approved for a credit card I had no idea what APR was and if the rates that I was getting were good. My dad actually showed me these equations and told me that what I was getting was great deal. This article has given me a better understanding as to what these both do. As to Jenna, I work at the bank and on all of our posters and when we are giving numbers and rates to customers we don't disguise anything. Currently our rates for mortgages are I believe 3.99% and then it says for the first five years below it in smaller print. After five years they switch to they switch to the APY. It is up to you as the customer to read into what your going to be dealing with. However, not all loans are like this. For auto loans the is a set interest rate and if you fail to pay your car on time then they tax that on your principal. I am sure that all banks work differently though.
ReplyDeleteThe article regarding APR and APY explains the subtle differences between compounding rates on interest which help investors or borrowers earn or save significant amounts upon their investment or loan. For example while looking at an APR rate for a savings account, little interest will be earned per year because ARP does not take advantage of any intra-year compounding. While an ARP rate may be beneficial for a loan it isn't always best for a interest bearing account. The benefits from APY would allow your Savings account to accumulate a much greater yield due to the compounding which could occur daily, weekly or every month. For this reason Banks normally Associate APY rates with loans because it allows the Bank to earn a greater interest then an ARP rate. In retrospect it is very beneficial to look at all the rates a bank has to offer on an Interest bearing account or loan to determine the which rate will help you earn or save the maximum amount possible.
ReplyDeleteThis article clearly explains the difference between APR and APY. The APR seems to be the best choice for any borrower mainly because it does not take into account the compounded interest. Through a lenders perspective it is obviously best to go towards the APY route because the interest is compounded which will result in more money. At first I was confused as to why corporations would not clearly specify the difference between the two, but it is clear that its done because they are interested in earning more. I do agree with Cristina when she states it is the customers responsibility to figure out all the perks before applying for a credit card or figuring out mortgage payments.
ReplyDeleteIt is very important being a lender to determine what effects APY and APR are going to have on our money. As lenders, we want to receive the highest rate of interest on our money. When we go to banks to open accounts, we have to be careful that we aren’t getting fooled between the APR and APY. They will always quote you the higher rate, which will always be the APY. The APY distinguishes compound interest, while the APR distinguishes annual percentage rate.
ReplyDeleteAfter reading this article, one would be able to better understand the difference APR and APY. The main difference lies in the fact that APR doesn't take into account the compounding of interest during the year where APY does. This is a good article if someone is interested in borrowing or lending money. Dealing with loans that quote the APR instead of the APY aren't always true because this doesn't quote the compounded interest during the year which usually causes the interests rates to go up.
ReplyDeleteAPR and APY are important to understand because we are all hopefully going to be in the market for a house or as Christina mention, a credit card....etc. The article stresses how we must be careful investors and shop for the lowest possible rate in these scenarios. Obviously, we would want the highest possible interest rate if we were looking to open a savings account. After reading this article and doing further research, I have concluded that this is a game played between investors and lenders. If interest rates such as (APY and APR) didn't exist, banks wouldn't be making revenue. In my opinion, investors need to find a bank they trust as well as one that offers fair rates. As stated, APY has compounding interest and is a better measure of debt and loans. Two things that I hope to avoid as much as possible in my life.
ReplyDeleteThis article describes the differences between APR and APY. It is important to know the differences because "many financial institutions have a sneaky way of quoting interest rates that use compounding principles to their advantage." Being able to understand this information is key to also understanding interest rates that you are getting. The subtle differences between the two rates is so important for both investors and borrowers. Different banks have different motives for quoting different rates. Therefore, it is always important to dig deeper and be certain of which rates they are using so that the proper analysis and comparisons can be made.
ReplyDeleteAPR and APY are similar concepts dealing with rates of return in loans or savings account (to say an example of each). this article helped me to better understand the concept of each and the difference between them. APR is just the rate of return per year without taking in account the compounding of the rates each month while APY does take into account this concept of compounding each month. This two concepts are used by banks to confuse customers because customer will always want the lowest rate on loans and if they show the APR of the loan it would be a lot lower than the APY of it, which would actually be the rate used on the loan and the percent of extra money that the customer would have to pay to the bank, and this happens the other way around when looking for savings accounts for example, the bank would show the APY but the important one would actually be the APR which would be lower.
ReplyDeleteHello,
ReplyDeleteWhat I got out of reading this article was a reminder of what to look for when investing and taking out loans. When investing in something you want your interest on that investment to increase. When loaning money you want the lowest interest rate possible. For example you would want a compound intreats rate on an investment and a low fixed intreats rate on a loan.
Thanks,
Ian
I posted on this last night. Looks like it got deleted.
ReplyDeleteAPY and APR are both very similiar concepts with minor differences.APR is the annual rate of interest without taking into account the compounding of interest within that year. While, APY does take into account the effects of intra-year compounding. This article helped to better understand the poroccess of getting a loan and what every bank has to offer. The main idea is to make sure that I understand which rates they are quoting and then compare the equivalent rates between alternatives.
ReplyDeleteThe article have successfully discussed the differences between the APR and APY. It gives me a better understanding of how these rates actually work. It also provides good examples about the rates like what rate we need to see when going to borrow a loan and what rate we expect to have when opening a saving account.
ReplyDeleteThe Investopedia article was very informative. I think it's quite ingenious on the part of the Insurance Companies and banks. But I agree with Jenna in that it seems rather unethical and there is a sense of illegality that comes with the very subtle difference between APY and APR. Although I understand why banks would give one rate for borrowers and another for savings account bearers, it seems shady as to not keeping a constant system of incurring interest, whether that be using APR or APY. But never again will I fall for the bank's trick when they offer me an APR when I know I won't be charged that amount. This article is definately worth reading
ReplyDelete-James Tantalo
It is interesting to see the main difference between APR and APY. The article gives a good example of the differences between the two and how they create two different numbers when you do them with a 1% interest rate over the twelve months of a year. Although this difference is a very small number, you have to look at the big picture. If you raise the interest rate or increase the initial value, you could be talking about a much larger difference between the two numbers, thousands of dollars different. This can be very useful in the long run.
ReplyDelete-Alex Brussard
APR and APY explains the subtle, yet important differences between compounding interest rates - which help investors or borrowers earn or save significant amounts. This article provides a great reference in allowing the reader to understand what they could potentially be getting themselves into. It teaches the reader to be sure they fully trust their bank, and to be conscious of what they are investing in and how the interest rates will affect their deposits.
ReplyDelete-Andrea H
This article helps clarify the differences between APR and APY since bankers won't give you any information. APR does not take into account compounding interest, while APY takes into account the "intra-year" compounding rate. So, when everyone is looking for the lowest rate possible, they should also take into account the different formulas. Banks will usually quote you with an APR to drag you in since it is a lower rate. In the end, it's a game as Ben said and psychological as well. Human nature is to look for the better deal and without any investigation on the borrower's part, they will have fallen into the banker's trap
ReplyDelete-Mike I
It becomes pretty clear after reading this article that it is important to be aware of what kind of rates that lenders are quoting. We need to pay attention if they are using APR or APY because there is quite a difference. Considering that APY takes into account interest on interest (compound) and APR does not, from a borrower's standpoint, we would want the lender to quote using APR because it will be cheaper.
ReplyDelete-Mike Grieco
It's a dog eat dog world, and knowing the difference between APR and APY can mean getting an advantage. And going along with what Cristina and Jenna were saying I think its up to both parties to be responsible, a customer should educate themselves and understand the contract that their signing, and if they find they can't afford it then they shouldn't buy it. On the other hand the lender shouldn't try to hide what they want to charge even by making the print smaller and if they don't think their client understands the concept they should explain it. I also think it's the banks responsibility that if they don't the client can make the payments not to give the loan.
ReplyDelete-Bobby O
I found the article and the information provided on APR and APY very interesting. It is clear from the reading that it is important that we know the difference between APR and APY because banks and credit card companies are always trying to manipulate the outcomes so they look more favorable to consumers. While the article talked about consumers always wanting the lowest percentage rates when applying for credit cards or loans, the reality is that if they often get played because they do not know the difference. While some of this information was shocking to me the reality is that as consumers we must educate ourselves we cannot just expect that everyone has our best interest at hand.
ReplyDeleteGillian K
Compounding is very important to APR vs. APY because financial institutions will be devious when quoting interest rates. APR is the annual rate of interest, credit cards will charge you a monthly interest rate but you have to multiply that number by twelve for twelve months. A borrower always wants the lowest possible rate. Banks can charge you a low interest rate but the frequency of compounding could end up making you pay a very large amount. On the other end you could be the lender and want to receive the highest rate of interest. When you open a savings account you want the highest rate of interest. Banks will most likely quote you the APR because the rate is lower than the APY. APY has some compounding during the year, which would make your rate of interest higher. Looking for the best interest rates will help in the long run.
ReplyDeleteMegan Maher
After reading the latest article I definitely better understand the difference between APR and APY. The main difference is that APY has interest that compounds on top of itself. Where APR has interest that only come affects the orignal amount. APY would definitely be more beneficial to one because it compounds during the year making the profit higher.
ReplyDeleteThis article really helped me understand the difference between APR and APY. APR is just the annual interest rate without taking into consideration any compounding, but APY does consider compounding, which in some cases can make a huge difference. The fact that banks try to hide this information from their customers is very deceitful. This just shows how important it is to understand this topic, it could make great deal of difference when trying to decide on what investments to make, what loans to get, and which credit card is better.
ReplyDeleteThis article gave me a better understanding of the differences between APR and APY. It stated that APR is the annual interest rate without considering any compounding while APY does considers compounding. Some people may over look this and think nothing of it. The overall idea I got from this article was to keep in mind what rates you are being quoted depending on what side of the tree you're on.
ReplyDeleteHi,
ReplyDeleteIt is important to understand the difference between APR and APY, because they are far between, especially considering long term. APR is what lenders want you to see. That is, because it is the annual percentage rate, which is going to be lower than the APY if it is compounding. APY takes into account the compounding, where interest is being earned on the interest previously attained. Thus be aware, bankers are going to squeeze you however possible, because it is in their best interest to make more money. And also it's not their fault borrowers were stupid. To close this out, I will quote the pen of the declaration, "Money, not morality is the principle commerce of civilized nations." - Thomas Jefferson
DG
This article really put into perspective what to look out for in the real world. In the classroom you really do not account for little tricks that lenders might play on you, to lure you into a deal which really is not that good. The article highlighted the difference between APR and APY and states the obvious (at least for me) that lenders want the highest rate that is possible and borrowers want the lowest rate that is possible. Also, the article explains that investors want to maximize compounding on their investments, while investors want to minimize compounding on investment of their loans.
ReplyDelete-Joe Hannan
This article is very informative as to the difference between APR and APY. The article made a big point of explaining how banks and other lenders may disguise their rates by using the subtle difference in order to entice one to sign a contract. This article is helpful to someone who is looking to maybe save a couple dollars on a loan, but also find a better interest rate on a savings account as well. This article also gives examples, which allows the reader to more fully and completely understand the difference.
ReplyDeleteAfter reading the article I was able to gain a further understanding on the difference between APR and APY. The main difference is that one takes into account compounding interest, that being APY. Compounding interest is interest earned on interest. This is important to know when going to a bank and asking for a loan. According to the article most people do not really know the difference between the two and banks often take advantage of this. In reading the article offered the perspective from the borrower that is going in looking for the loan. It talked about knowing which rate is better and which rate will be better for a loan. At the end of reading this article it makes it much easier to understand what to look for when going to borrow money.
ReplyDeleteAfter reading this article, I was better able to understand the difference between APR and APY. The major difference is that APY deals with compounding interest and APR does not. When going and trying to understand the loan, it is crucial to know if interest is compounding or if it is not. To compound means to gain interest on interest. It also tells how people looking to invest their money are looking to gain the most compounded interest and want to invest in accounts with high compound.
ReplyDeleteThe article helped me to better understand the difference between APR and APY. The APR doesn’t take into account the compounding interest for the year. The APY takes into account the effect of the intra- year compounding. Most people think that the small difference between these two formulas would not have much impact. However, in the long run that small difference can make a huge impact on a loan that takes 15 years or more to pay off.
ReplyDeleteTiffany
This article further clarifies the difference between APR and APY. I agree with Jenna that it really is questionable that banks and companies can quote the APR or APY when they know full well they will be charging or compounding differently. Most people would not think to question their lender or bank on the rate they are being charged, and because of this they would be mislead into choosing that loan or that bank to invest their money in. I understand that banks and other lenders are in business to make money, but I also think that more loyalty will arise if banks and lenders are honest with their customers.
ReplyDelete-Maire Reynolds
After reading this article, I found it was very informative. It did well when explaining APY and APR and their differences. Also, it showed how a small percent can mean a large change in the amount of money being paid to the bank over many years. I do not believe it is unethical on the part of the bank to portray APY and APR in the ways that they do because they are trying to find ways to seem better than the competition. This article was a well chosen one especially to be able to grasp the concepts of APY and APR before the test.
ReplyDeleteSincerely,
Dominic Matacale
This article explained the difference of APR and APY. Looking at the annual rate of interest with and without compounding we can see that businesses can use this strategically in business related decisions. It states that many financial institutions can manipulate their quote on interest rates that use compounding principles to their advantage. This information can be very important for investors and borrowers.
ReplyDelete-Amanda Pallikunnel
This article helped me understand the difference of APR and APY. I learned that APY includes compound interest and APR does not. Also how the small difference between the two formulas can have a huge impact on a loan or savings account if it is a long-term loan.
ReplyDeleteThis article gave me a better understanding of APR adn APY. I learned that APR does not contain the compound interest, so it can be deceiving. It looks low when you first read about it, but you have to take into consideration that you must multiply that number by the number of periods in the year. So people might not be expecting this, which will can cause bad decisions. I learned that when you are the lender, they do the exact oppostite. They will quote the APY so it looks like you are getting the highest rate as possible. When it comes to money, people can be very deceiving.
ReplyDeleteAfter reading this article let me tell you I will be doing a better job of double checking. If you get a huge loan the small fractions of interest will play a large role at the end of the loan you could be paying much more then what you would have if you were aware of the APY and the APR. I know I will be more aware of the difference now.
ReplyDeleteThis artivle has given a new meaning to APR and APY. I found out that APR does not include compound interest so it makes it very different from APY. The difference between the two equations is small but the most minor error can have the biggest impact on loans givin out to people. This is very important for investors and borrowers. --John DiMartino
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