BinanceAlpha $1.7M Reward Annual Percentage Rate (APR) $LAYER
$ and Annual Percentage Yield (APY) are two key concepts used in calculating interest from a variety of investments or loans. These investments can include providing funds for liquidity pools in exchanges, staking, yield farming, digital savings accounts, and more.
Key points:
The fundamental difference between APR and APY lies in compound interest rates. APY takes compound interest into account, while APR does not.
Compound interest includes calculating the principal amount plus the interest paid on the principal amount. The compounding effect always leads to accumulating higher interest over time.
The Annual Percentage Rate (APR) is typically used in the context of the cost of borrowing through the interest rate, while Annual Percentage Yield (APY) refers to the interest distribution for investors who lend or save. The difference between APY and APR
is solely due to compounding when calculating returns. With all other factors being equal (initial investment, quoted interest rate, and investment duration), APY will always yield a higher final amount due to the compounding effect.
In practice, if you are borrowing money, it's better to do so using APR interest rates as a baseline. However, if you are investing in funds, APY interest rates will lead to higher overall returns.