Annual Percentage Yield (APY)

The annual percentage yield (APY) is the rate obtained when the annual income that an investor will receive with his principal is calculated by taking into account the compounding interest. Different from the APR, certain periods are determined in order to calculate the compound interest. Each of these periods is the time to wait for the interest income obtained until that time to be added to the principal. As the periods progress, the principal that brings interest income increases cumulatively each time. This causes the total profit to increase.

Explore more than the definition of APY by going to the related article.

Why is the Annual Percentage Yield (APY) Important?

Cryptocurrency investments, like any other investment, are evaluated according to the rate of return, and high earnings are the main goal. The rate of return/earnings in cryptocurrencies varies, but it is generally the percentage of growth that will be experienced in the investment in a year. Of course, if this return has different compound interest rates, it is necessary to choose the one with the highest compound yield.

Points to Consider in the Annual Percentage Yield (APY)

• Making decisions by only comparing the return rates and the APR rates of each while investing leads to wrong decisions because compound interest is not taken into account.
• The more frequent and larger the compound interest rate, the higher the earnings will be.
• Annual Percentage Yield (APY) is the annual rate of earnings to be earned in cases where interest is compounded.
• The more frequent and high-interest rates are combined, the higher the rate of return will be.
• In compound interest, the interest earnings are periodically added to the total amount at regular intervals, increasing the balance. In this case, since the principal will increase after each payment, it increases the income of the interest income that will follow.

How is the Annual Percentage Yield (APY) Calculated?

The Annual Percentage Yield (APY) standardizes the rate of return by calculating the real growth to be earned with compound interest, assuming the time that money will remain in the investment as one year. When calculating this, the formula is “APY = (1 + rate per period)^ number of periods – 1)”.

Click for the difference between APY and APR.