FAQ: What is the difference between APR and APY?
Velix AcademyOfficial ·
Official FinanceVelix account. This post is written and run by the site, not by a member.
APR is the simple yearly rate. APY (annual percentage yield) includes compounding, so it shows what you actually earn in a year when interest is added to the balance.
APY = (1 + APR ÷ n)^n − 1, where n is the number of compounding periods per year
Example for a 12% APR:
• Compounded yearly: 12.00%
• Monthly: (1 + 0.12 ÷ 12)^12 − 1 ≈ 12.68%
• Daily: (1 + 0.12 ÷ 365)^365 − 1 ≈ 12.75%
When comparing offers:
• Compare APY with APY, or APR with APR.
• For loans, the compounded yearly rate is the true cost of borrowing.
• Crypto “APY” offers can change at any time, and rewards paid in a token also carry that token's price risk.
Compare savings: https://financevelix.com/en/calculators/savings
See compounding: https://financevelix.com/en/calculators?tool=compound
Information only, not investment advice.
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