The key difference between the interest rate and the APR (Annual Percentage Rate) on a Certificate of Deposit (CD) is that the APR includes any additional fees, whereas the interest rate is simply the percentage earned on the deposit. According to provided information, the annual percentage rate (APR) is the interest rate plus additional fees and any points.
Here's a breakdown:
Understanding Interest Rate and APR
| Feature | Interest Rate | APR (Annual Percentage Rate) |
|---|---|---|
| Definition | The stated percentage earned on the CD. | The interest rate plus any additional fees and points. |
| Components | Only the percentage earned. | Interest rate, fees (if applicable), and any points. |
| Impact | Shows the basic earnings potential. | Reflects the true cost of the CD, accounting for fees. |
Factors Influencing Interest Rates
Keep in mind that interest rates themselves are dynamic and influenced by many external factors such as:
- Your credit score.
- The lending institution you choose.
- Prevailing inflation rates.
- The overall economic climate.
While these factors primarily impact the interest rate offered on the CD, they indirectly influence the APR as well, since the APR is calculated from the interest rate.
