APR and APY: Comparing Fees and Compounding in Crypto Yields
Summary
The document distinguishes APR, which reflects a stated annual rate and associated costs without compounding, from APY, which accounts for the effect of compounding. It explains why APR can differ from a nominal interest rate and gives loan and investment examples to illustrate how fees and compounding change the effective return or cost. These examples are illustrative calculations rather than independent market evidence.
For crypto savings and staking products, the article recommends comparing rates on the same basis and checking how often rewards compound. Products with equal APR can produce different yields when their compounding schedules differ, and a larger advertised APY alone does not establish that a product is better. The discussion is educational and does not evaluate platform, token, or staking risks, so rate conversion is only one part of a complete product comparison.
Key ideas
- APR includes relevant transaction costs but does not account for compounding.
- APY reflects compounding and can exceed APR when interest is reinvested.
- Rate comparisons are clearer when products are converted to a common APR or APY basis.
- Compounding frequency can affect realized crypto savings or staking yields.
- The examples explain rate arithmetic but do not assess product or platform risks.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.