APY

APY vs APR: What’s the Difference?

APY, or annual percentage yield, incorporates interest compounded quarterly, monthly, weekly, or daily, while APR, or annual percentage rate, doesn’t. This simple distinction can make a significant difference to the calculations for returns over a period of time. It is therefore important to understand how these two metrics are calculated and what it means for the returns that you can earn on your digital funds.

APR

APR stands for annual percentage rate. This is the simpler of the two terms. In simple terms, the Annual percentage rate is the interest a lender is bound to earn on their money. Also, the borrower pays for the interest over one year.

APY

#APY stands for Annual Percentage Yield. Unlike in the #APR model, where you get a fixed amount after every year, which is decided upon by the initial principal amount itself, in the annual percentage yield, you will receive some interest every month.
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Key Differences Between APY and APR
1. Definition:
- APR (Annual Percentage Rate): This is the simple interest rate calculated on your initial investment over a year. APR does not account for compounding interest.
- APY (Annual Percentage Yield): APY includes the interest rate and the effect of compounding, which means it reflects the additional interest earned as the interest itself is reinvested over time.
2. Compounding:
- With APR, you earn interest on your original principal only. For example, if Binance offers 5% APR on a staking pool, you’ll receive 5% interest on the initial amount, assuming none of the interest is reinvested.
- APY takes into account the compounding frequency. For example, if Binance compounds your staking rewards weekly, the interest earned each week is added back to your principal, meaning future interest is calculated on this larger amount. This will give you a higher total return compared to APR.
3. Simple Example:
- Let’s say Binance offers a 5% APR on staking BNB. If Binance compounds rewards weekly, the APY might be around 5.12%. The small increase happens because APY accounts for the compounding effect.
4. Which is Higher?
- APY is always higher than or equal to APR because of compounding. The more frequently the interest is compounded (daily, weekly, monthly), the larger the difference between APY and APR.
5. When to Use APR vs. APY:
- APR is useful for comparing simple interest rates, such as when borrowing or lending without compounding.
- APY is better when comparing investment returns, such as staking or yield farming, where compounding plays a role.
Binance-Specific Example:
- On Binance, when you stake tokens (e.g., BNB or USDT), you’ll often see both APR and APY displayed. The APY will typically be higher because it includes the effect of compounding.
- For staking products on Binance, it’s important to check the compounding frequency to fully understand how much you can earn.
#HamsterKombat #apr #apy

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Percentage is a basic and important concept in crypto.
It is a way of dividing something into 100 equal parts and then describe parts of it. i.e. If I have $1k dollars. And I spend $200 dollars from it, then what percentage of $1k I spent?
Formula = Parts/Total x 100
Calculation: 200/1000 x 100 = 20%
I spent 20% of $1k.
Now to find 20% of $1k is how much?
Formula = Total x (Percent in Fraction)
Calculation: 1000 x .20 = 200
20% of 1k is 200.
To represent percent in fraction, divide the percent by 100. i.e. 20% = 20/100 = 0.20 or simply 0.01 represent 1%, 0.02 represents 2%, 0.10 represent 10% and so on.
In crypto we usually see percent (APY, APR, ROI) while stacking/lending/borrowing etc. Equipped with the basics of percentage in the above para, now lets move on to find and understand these.
While stacking there is this APY%, it stands for Annual Percentage Yield, which means as to how much profit you would get yearly on an investment while stacking (saving). Now let suppose we have $1k USDT and we are stacking it and the APY% provided by the platform is 30%.
Calculation: 1000 x 0.30 = 300
It means we will get $300 per year while stacking $1k. Since there are 365 days in a year 300/365 = 0.82 per day. We will get 82 cents per day.
Note: 0.30 is equal to 30% while 0.03 is equal to 3%
APY, APR and ROI is a little bit different but you get the idea. Now you can use these basic maths skills to calculate APY% etc. and back & forth.
#APY #Mathematical
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