APR and APYAPR
APR (annual percentage rate) is a yearly rate without compounding; APY (annual percentage yield) includes compounding. A 12% APR compounded monthly equals an APY of about 12.68%. In crypto, advertised rates are often variable and can change or disappear quickly.
A platform offers “12% APR” and another “12.68% APY”. They can be the same deal. The difference is compounding — whether interest earns interest. Knowing how to convert between the two lets you compare offers honestly, and knowing why crypto rates move helps you avoid treating a headline number as a promise.
- Category
- Cryptocurrency and Blockchain
- Reading time
- 4 min
- Also called
- Annual percentage rate, Annual percentage yield, Simple vs. compound rate
- Updated
APR and APY in plain words
APR is the simple yearly rate. US savings rules define an interest rate as the annual rate that does not reflect compounding.1
APY shows the total you earn in a year once compounding is included. Under the same rules, APY reflects the interest rate and how often it compounds over a 365-day period.1
The more often interest compounds, the bigger the gap. In crypto, yields usually depend on lending, staking or funding and can change at any time — and crypto assets are often volatile and risky.2
How to compare APR and APY, step by step
Find the rate type
Check whether the number is APR (no compounding) or APY (with compounding).1
Find the compounding frequency
Daily, weekly, monthly or not at all.
Convert APR to APY
APY = (1 + APR ÷ n)ⁿ − 1, where n is the number of compounding periods per year.1
Compare like with like
Convert every offer to APY before comparing.
Check if the rate is fixed
Variable rates can be cut without notice; promotional rates often expire.
Check the risk
Ask who pays the yield, whether your funds are locked and what happens if the platform fails.
Worked examples
Example 1 — 12% APR, monthly compounding
APY ≈ 12.68%You deposit $1,000 at 12% APR, compounded monthly.
| Monthly rate | 12% ÷ 12 = 1% |
| After a year | $1,000 × 1.01¹² = $1,126.83 |
| APY | ($1,126.83 − $1,000) ÷ $1,000 ≈ 12.68% |
Monthly compounding turns a 12% APR into about 12.68% APY.1
Example 2 — Daily compounding
APY ≈ 10.52%A rate of 10% APR compounds daily (365 times a year).
| Formula | (1 + 0.10 ÷ 365)³⁶⁵ − 1 |
| APY | ≈ 10.52% |
| On $10,000 | $10,000 × 10.52% ≈ $1,052 vs $1,000 at APR |
More frequent compounding raises the APY above the APR.1
Example 3 — A variable crypto rate
$125 instead of $200You lend $5,000 of a Stablecoin at an advertised 8% APR. After 3 months the rate falls to 2%.
| First 3 months | $5,000 × 8% × 3/12 = $100 |
| Next 3 months | $5,000 × 2% × 3/12 = $25 |
| Six-month total | $100 + $25 = $125, not $200 |
An advertised yield is not guaranteed — crypto products can be very risky and their value can swing sharply.2
APR vs. APY
| Aspect | APR | APY |
|---|---|---|
| Compounding | Not included | Included |
| Same deal looks | Lower | Higher |
| Common for | Loans and borrowing costs | Savings and yield products |
| Best for comparing | Offers with no compounding | Offers with different compounding |
When APR and APY matter
Advantages and disadvantages
Advantages
- APY shows what you actually earn over a year.
- Converting to one basis makes offers comparable.
- The formula is simple and works for any compounding frequency.
Disadvantages
- Headline rates can be variable and change quickly.
- APY assumes you leave interest in for the full year.
- Neither number shows the risk of losing the principal.
- Rates paid in a volatile token can be worth less than they look.
Going deeper
Read as far as you need. Each level builds on the one before it.
Interest on interest
Beginner
APR ignores compounding; APY includes it.1 Same rate, different labels.
The conversion formula
Intermediate
APY = (1 + APR ÷ n)ⁿ − 1. The higher n is, the larger the APY, because interest is added more often.1
Yield is not risk-free
Advanced
A high yield is paid for by someone: borrowers, leveraged traders or new token issuance. If the platform or the token fails, the yield is worthless. Crypto assets can be exceptionally risky and volatile.2 Check Counterparty Risk before chasing the highest number.
Common mistakes
Comparing APR with APY
Treating a 12% APR and a 12% APY as the same.
Assuming the rate is fixed
Planning on a rate that can change daily.
Ignoring token price
Earning 10% in a token that falls 50%.
Ignoring lock-ups
Not checking whether funds can be withdrawn when needed.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- APR is a yearly rate without compounding.
- APY includes compounding.
- APY = (1 + APR ÷ n)ⁿ − 1.
- Compare offers on the same basis.
- Crypto rates are often variable and carry risk to the principal.
Frequently asked questions
Why do platforms show APY instead of APR?
Is a crypto APY guaranteed?
When are APR and APY equal?
Further learning
- Interest Rate
The basics of how rates work.
- Counterparty Risk
Who stands behind the yield.
- Stablecoin
A common asset in crypto lending.
- Real Yield
Yield after inflation.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- eCFR — 12 CFR Part 1030 (Regulation DD, Truth in Savings). § 1030.2 Definitions (opens in a new tab) Checked .
- FINRA. Crypto Assets (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.