Annual Percentage Yield (APY) is a method of calculating the amount of money earned in a money market account over the course of a year. In other words, it is a technique for tracking how interest accumulates over time.
This return is based on the base rate, also known as the Annual Percentage Rate (APR). The interest users now earn on their interest-bearing money is called compound interest. This is the amount paid out on both the principal (the money you deposited into the account) and the accrued interest. Compound interest allows you to earn more money over time, which is why it is such a powerful tool for investing.
APR more reliable than APY
In the crypto world, there are a number of yield programs that users can choose from. As is the case everywhere, factors such as fees, barriers to entry, interest earning methods, and the type of cryptocurrencies available can vary from platform to platform. Most often, returns are quoted as APY, which assumes that the user reinvests all earnings back into the position. By definition, this figure is higher than the base rate (APR), so APY should generally be taken with a grain of salt.
