Understanding APY and APR
APY and APR are two ways of expressing returns on financial products, including certain crypto services.
Both represent interest rates, but they are calculated differently.
What is APR?
APR stands for Annual Percentage Rate.
It represents the yearly interest earned or paid without taking compounding into account.
What is APY?
APY stands for Annual Percentage Yield.
It includes the effect of compounding, meaning interest earned on previously accumulated interest.
Because of compounding, APY is usually higher than APR when calculated over the same period.
Example
If interest is compounded regularly, the total return over a year may exceed the simple APR rate.
APY reflects this additional growth.
Why this matters
Understanding the difference between APY and APR can help users compare financial products and understand potential returns more clearly.
Takeaway
APR shows simple annual interest, while APY includes the effects of compounding. The difference can affect the total return over time.
Tell me more…
- What is Cryptocurrency?
- How does crypto trading work?
- What is blockchain?
- What is Bitcoin?
- What Is Ethereum (ETH)?
- What is a Stablecoin in Cryptocurrency?
- What is a Memecoin?
- What are Gas Fees?
- What Are Ethereum Gas Fees and Why Do They Change?
- What are Ethereum Layer-2 Blockchains?
- What is a crypto exchange?
- How to Keep Your Crypto Secure
- Private Keys vs Public Keys: What’s the Difference in Crypto?
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