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APY

APY stands for Annual Percentage Yield. It shows how much you could earn in one year, including compound interest.

Last updated • 2 min read
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What is APY?

Compound interest means that the interest you earn is added to your balance. You can then earn a return on that previously earned interest, too.

APY assumes that earnings are continually reinvested. The more often earnings are credited and reinvested, the higher the APY can be at the same base rate.

That’s why APY is often higher than APR. APR shows only the annual base interest rate and doesn’t account for compound interest.

An example of APY

You lend out 100 tokens at a base interest rate of 10 percent. Without compound interest, you’ll earn 10 tokens in interest after one year.

What if the interest is credited and reinvested every week? Then you’ll also earn interest on the interest you’ve already received. At the same base rate, your total could be about 110.51 tokens. APY shows that difference.

Why is APY important in crypto?

You’ll often see APY for staking, crypto lending, and liquidity pools on DeFi platforms. The percentage helps you understand the annual return a platform expects when earnings are reinvested.

A high APY doesn’t guarantee what you’ll actually earn. APY usually assumes the rate stays the same throughout the year. In crypto, interest rates can change.

So also check how often earnings are paid out and whether they’re automatically reinvested. This helps you better understand what a quoted APY does and doesn’t tell you.

Disclaimer: This content is for informational purposes only and does not constitute financial, investment, legal, or tax advice. The information provided may be incomplete, inaccurate, or outdated and should not be relied upon as such. Nothing on this website should be considered a recommendation to buy, sell, or hold any cryptocurrency. Investing in crypto-assets involves risk of loss.