The Difference Between APY and APR in Crypto Explained
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APR (annual percentage rate) and APY (annual percentage yield) are key concepts used in the calculation of interest from a variety of investments or loans. These investments may include the provision of funds to liquidity pools on exchanges, staking, yield farming, crypto savings accounts and more.
Some of these investments may pay you interest based on the APR rate, while others use the APY method of calculating the payout. For any investor, it’s imperative to know the difference between APR and APY in order to allocate your funds to the most profitable income sources.
Key Takeaways:
The core difference between APR and APY lies in compounding interest rates. APY takes compounding interest into account, while APR does not.
Compounding interest involves the calculation of the principal plus the interest paid on the principal amount. The compounding effect always yields higher accumulated interest over time.
APR is typically used in the context of the cost of borrowing by interest rate, while APY refers to the interest payout for investors who lend or save their money in an account.