CLEARING THE AIR: What’s the Difference between APR vs APY?

If you have ever looked into decentralized finance (DeFi) products, you mostly likely have come across these two terms, APY and APR. They’re similar terms, and they both have something to do with interest rates. But what exactly are they? And why are they vital to investing?

• An Annual percentage yield (APY) measures the amount of interest you earn when you save.
• An Annual percentage rate (APR) measures the amount of interest you will be charged when you borrow.
• The lower the APR, the less you will have to pay in interest when you borrow. And the higher the APY, the more you will earn in interest when you save.

APR and APY may seem confusing at first, but it’s not hard to tell one from another by putting it at the back of your mind that annual percentage yield (APY) is the more complex metric incorporating compound interest. Because of the effect of earning interest on interest, APY is always a higher number when interest is compounded more frequently than once a year.

The most important thing is to always to check which rate you are looking at when calculating the interest you would earn.

In terms of cryptocurrency, it is vital to note what APY means in relation to the type of crypto product you are seeking to invest in. Some product collaterals use the term APY when referring to the rewards that one can earn in cryptocurrency over the selected timeframe, and not the actual or predicted yield in fiat currency.