APR vs. APY: What’s the difference?

The compound interest can be set to daily, weekly, monthly, annually or continually. 

Calculating the APY is a bit more complex than the APR since interest is added to the principal, and then the interest on that total is calculated, considering the number of periods the amount is adjusted.

Compounding frequency vs. Number of periods in APY

To calculate the APY, you can use the following formula:

Formula to calculate APY

For example, an investment of 1,000 coins is made at a compound interest of 10% and daily compounding. The following calculation indicates that a total of 1,105 will be collected after one year. In the following year, it should be 1,221. The earnings increase the longer it is held and at higher interest rates.

Every time the computation is updated, the interest should be added to the sum comprising the initial investment and the accrued interest profits. But what does a 10% APY mean in crypto?

Most cryptocurrency projects offer only 1% APY, but some offer 7% on flexible accounts, such as Phemex for Tether (USDT). In the case of fixed saving accounts, they can go as high as 10%. There are also DeFi platforms like PancakeSwap (CAKE) and SushiSwap (SUSHI), which are said to offer very high APYs of over 100% to investors.

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