thefin

APY & APR

APR is the simple annual interest rate without compounding; APY includes compound interest, showing the actual yearly return.

What is APR vs APY?

APR (Annual Percentage Rate): Simple interest rate for one year, without compounding.

APY (Annual Percentage Yield): Effective annual rate including compound interest.

The Difference

If you deposit $1,000 at 12% for one year:

CompoundingAPRAPYFinal Amount
None12%12%$1,120
Monthly12%12.68%$1,126.83
Daily12%12.75%$1,127.47

Formula: APY = (1 + APR/n)^n - 1

Where n = number of compounding periods per year

In Crypto

Staking Rewards

Usually quoted in APY since rewards compound.

Lending Protocols

  • Supply APY: What you earn lending
  • Borrow APR: What you pay borrowing

Liquidity Mining

Often quoted in APR, but actual returns depend on:

  • Token price changes
  • Impermanent loss
  • Compounding frequency

Red Flags

  • Extremely high APY (100%+) often unsustainable
  • APY paid in inflationary tokens may not preserve value
  • Variable rates can change dramatically
  • Check if APY includes token emissions vs real yield

Calculating Real Returns

  1. Check if rate is APR or APY
  2. Factor in token price volatility
  3. Account for gas fees (eating into returns)
  4. Consider impermanent loss for LP positions
  5. Subtract any platform fees