Guest Author
Updated 3:34 PM CDT, Tue September 1, 2026
Published Under: Consumer Products Educational
Not everyone is a financial whiz, and that's completely okay. We've all been in that conversation where someone's tossing around financial jargon, and you nod along, act like you're understanding every word, and tell yourself, "I'll look it up later."
If that sounds familiar, you're in good company. Some parts of personal finance are genuinely confusing, and there's no shame in being honest about what you know and what you don't. So let's clear a few things up. At PSB Bank, we want to shed a little light on the terms people mix up most, so you can skip the nodding and actually follow along next time.
Here are five commonly confused financial terms, and what they really mean.
What people think it means: People often tend to think of APR as the interest on their loan, used interchangeably with "interest rate." (Also, it's not pronounced "APER.")
What it actually means: APR stands for Annual Percentage Rate. It represents the total yearly cost of borrowing money. Your APR includes your loan's interest rate and certain fees associated with the loan. That's why two loans with the same interest rate can have different APRs.
As the Consumer Financial Protection Bureau explains, APR is a broader measure of what you'll pay than the interest rate alone. When you're comparing loan offers, APR often gives you a more accurate, apples-to-apples look at the real cost.
What people think it means: It's basically APR, but for your deposit accounts.
What it actually means: APY stands for Annual Percentage Yield, and it tells you what you'll earn on your balance, not what you'll pay in interest. It also takes compound interest into account, meaning the interest you've already earned can generate additional interest. A higher APY can help your savings grow faster over time — something worth keeping in mind when you're comparing a savings account or a certificate of deposit (CD).
What people think it means: A grade your bank gives you for how much you can borrow.
What it actually means: Your bank doesn't determine your credit score. It's calculated using information from the country's three primary credit bureaus — Equifax, Experian, and TransUnion. A wide range of factors go into it, including payment history, current debt obligations, length of credit history, and credit usage. Your bank does use your credit score to assess your risk level as a borrower, though. The better your score, the better your position when you apply for a loan.
Want to see where you stand? You can check your reports for free at AnnualCreditReport.com, the only federally authorized source.
Related: Understanding Your Credit Limit: What It Means and Why It Matters
Feeling more confident already? Our team can help you put these terms to work, whether that's finding the right savings account or preparing for a loan. Contact us online or visit your local branch to talk it through.
What people think it means: The interest that gets added to your account balance.
What it actually means: Compound interest is interest earned on both your original deposit and the interest you've already accumulated. Think of it as "interest earning interest," a concept the U.S. Securities and Exchange Commission calls one of the most powerful tools in saving. If you have an account that earns compound interest, it can help your balance grow faster.
Just remember, the same force that works for you as a saver can work against you as a borrower, since interest can compound on what you owe, too.
What people think it means: The current value of my home.
What it actually means: Equity is the portion of an asset that you actually own. For a home, you calculate it by subtracting what you still owe on your mortgage from the home's current value.
For example, if your home appraises at $250,000 and you owe $150,000, you have $100,000 in equity.
Equity can grow as you pay down your loan or as your property's value increases, and it's something you can eventually put to work through options like a home equity line of credit.
Related: How to Build Credit From Scratch: A Step-by-Step Guide for Young Adults
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APR (Annual Percentage Rate) is what you pay to borrow, and it includes your interest rate plus certain loan fees. APY (Annual Percentage Yield) is what you earn on deposits, and it factors in compound interest. In short: APR applies to loans, and APY applies to savings.
No. Your credit score is calculated using information from the three major credit bureaus — Equifax, Experian, and TransUnion — based on factors like payment history, debt, credit history, and usage. Your bank uses your score to help assess your risk as a borrower, but it doesn't set the score itself.
Compound interest is interest earned on both your original balance and the interest you've already accumulated, essentially "interest earning interest." It helps your savings grow faster over time, though it can also increase what you owe when you're the borrower.
Subtract what you still owe on your mortgage from your home's current value. For example, if your home is worth $250,000 and you owe $150,000, you have $100,000 in equity. Equity grows as you pay down your loan or as your home's value rises.
Because two loans with the same interest rate can still cost different amounts once fees are included. APR rolls those costs together, giving you a more accurate, apples-to-apples comparison of what each loan really costs.
If that sounds familiar, you're in good company. Some parts of personal finance are genuinely confusing, and there's no shame in being honest about what you know and what you don't. So let's clear a few things up. At PSB Bank, we want to shed a little light on the terms people mix up most, so you can skip the nodding and actually follow along next time.
Here are five commonly confused financial terms, and what they really mean.
APR
What Is It, and How Is It Different From an Interest Rate?
What people think it means: People often tend to think of APR as the interest on their loan, used interchangeably with "interest rate." (Also, it's not pronounced "APER.")
What it actually means: APR stands for Annual Percentage Rate. It represents the total yearly cost of borrowing money. Your APR includes your loan's interest rate and certain fees associated with the loan. That's why two loans with the same interest rate can have different APRs.
As the Consumer Financial Protection Bureau explains, APR is a broader measure of what you'll pay than the interest rate alone. When you're comparing loan offers, APR often gives you a more accurate, apples-to-apples look at the real cost.
APY
What Does It Mean for Your Savings?
What people think it means: It's basically APR, but for your deposit accounts.
What it actually means: APY stands for Annual Percentage Yield, and it tells you what you'll earn on your balance, not what you'll pay in interest. It also takes compound interest into account, meaning the interest you've already earned can generate additional interest. A higher APY can help your savings grow faster over time — something worth keeping in mind when you're comparing a savings account or a certificate of deposit (CD).
Credit Score
Who Actually Decides It?
What people think it means: A grade your bank gives you for how much you can borrow.
What it actually means: Your bank doesn't determine your credit score. It's calculated using information from the country's three primary credit bureaus — Equifax, Experian, and TransUnion. A wide range of factors go into it, including payment history, current debt obligations, length of credit history, and credit usage. Your bank does use your credit score to assess your risk level as a borrower, though. The better your score, the better your position when you apply for a loan.
Want to see where you stand? You can check your reports for free at AnnualCreditReport.com, the only federally authorized source.
Related: Understanding Your Credit Limit: What It Means and Why It Matters
Feeling more confident already? Our team can help you put these terms to work, whether that's finding the right savings account or preparing for a loan. Contact us online or visit your local branch to talk it through.
Compound Interest
Why Does It Matter So Much?
What people think it means: The interest that gets added to your account balance.
What it actually means: Compound interest is interest earned on both your original deposit and the interest you've already accumulated. Think of it as "interest earning interest," a concept the U.S. Securities and Exchange Commission calls one of the most powerful tools in saving. If you have an account that earns compound interest, it can help your balance grow faster.
Just remember, the same force that works for you as a saver can work against you as a borrower, since interest can compound on what you owe, too.
Equity
What Do You Actually Own?
What people think it means: The current value of my home.
What it actually means: Equity is the portion of an asset that you actually own. For a home, you calculate it by subtracting what you still owe on your mortgage from the home's current value.
For example, if your home appraises at $250,000 and you owe $150,000, you have $100,000 in equity.
Equity can grow as you pay down your loan or as your property's value increases, and it's something you can eventually put to work through options like a home equity line of credit.
Related: How to Build Credit From Scratch: A Step-by-Step Guide for Young Adults
Let's Make Finances Feel Less Confusing
Getting comfortable with these terms is a great start, but our team can do so much more than clear up definitions. If you'd like help finding the right mix of banking products and services for your goals, contact us online or visit your local PSB Bank branch. We're always happy to explain things in plain English.Member FDIC.
Contact Us • Find a Location
Frequently Asked Questions
What's the difference between APR and APY?
APR (Annual Percentage Rate) is what you pay to borrow, and it includes your interest rate plus certain loan fees. APY (Annual Percentage Yield) is what you earn on deposits, and it factors in compound interest. In short: APR applies to loans, and APY applies to savings.
Does my bank decide my credit score?
No. Your credit score is calculated using information from the three major credit bureaus — Equifax, Experian, and TransUnion — based on factors like payment history, debt, credit history, and usage. Your bank uses your score to help assess your risk as a borrower, but it doesn't set the score itself.
What is compound interest in simple terms?
Compound interest is interest earned on both your original balance and the interest you've already accumulated, essentially "interest earning interest." It helps your savings grow faster over time, though it can also increase what you owe when you're the borrower.
How do I calculate the equity in my home?
Subtract what you still owe on your mortgage from your home's current value. For example, if your home is worth $250,000 and you owe $150,000, you have $100,000 in equity. Equity grows as you pay down your loan or as your home's value rises.
Why does APR matter when comparing loans?
Because two loans with the same interest rate can still cost different amounts once fees are included. APR rolls those costs together, giving you a more accurate, apples-to-apples comparison of what each loan really costs.
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