Difference Between APR and APY
When staking on any platform, our EGG included, the users can see the phrases APR and APY, and the different percentages they show for each cryptocurrency token. Seeing how similar they appear, it is easy to notice how these phrases can be confusing. Both are used to figure out how much interest you’ll pay on your investment (like when you stake your tokens) and credit products. When they’re applied to your account balances, they have a big impact on how much you earn or have to pay.
Although the terms APR and APY may sound similar, they cannot be used interchangeably. To begin with, APY (annual percentage yield) takes compound interest into account, while APR (annual percentage rate) does not. The larger the difference between APR and APY, the more frequently interest compounds. Another difference is that investment firms typically promote the annual percentage yield (APY), whereas lenders promote the annual percentage rate (APR).
- The Annual Percentage Rate (APR) is the cost of earning or borrowing money.
- The Annual Percentage Yield (APY) is used to calculate how much money is gained on a money market account within a year.
- APR does not take into account compounding interest, while APY does.
- The EGG dashboard can be helpful when choosing which platform to use when creating a cryptocurrency savings account with APY.
What is APY in Crypto: Definition
APY or Annual Percentage Yield is a technique used to calculate how much money is gained on a money market account within a year. In other words, it allows one to monitor and calculate the accumulated interest. For example, if you go to our staking page and try to stake Ethereum 2.0, you will see that under your rewards the APY for your stake is displayed: 4.8% ETH + 5.1% EGG.
In order to better understand APY, it is necessary to know the difference between simple and compounding interest. Simple interest refers to the interest that is only earned on the primary deposit. On the other hand, compounding interest is the amount accumulated on both the principal amount put into the account and the accrued interest. In other words, it allows one to make money over time.
An investor wishing to generate a return on investment while maintaining it can use a cryptocurrency savings account with APY, which is considered the best tool for such occasions. In order to choose a good investment platform, we suggest considering the following:
- Entrance barriers
- Interest-earning procedure
- Types of crypto assets
Using the EGG dashboard to analyze and compare pools’ rewards with a more efficient analytical approach will make it easier to choose between the various platforms.
What is APR in Crypto: Definition
APR or the Annual Percentage Rate is the monetary value or reward that users can receive by allowing their crypto tokens to be available for loans while considering the interest rates and other costs that borrowers need to pay. Unlike APY, APR does not take into consideration the compounding interest. The interest rates that some cryptocurrency exchanges offer that allows the user to lend their crypto coins vary greatly depending on the type of loan or currency that is lent out. Two of the most common APR loan types are Fixed Lending and Flexible Lending.
- Fixed Lending keeps your money for a set period of time at a fixed rate. The advantage of this sort of loan is that the user can receive a higher interest rate by simply not touching their cryptocurrency. However, the downside of this type of loan is that the value of the users’ portfolios may fluctuate because they will be unable to exchange their locked coins.
- Flexible lending, on the other hand, has a lower return rate. Unlike the Fixed Lending type, the users can take out their cryptocurrency whenever they want.
APR also shows how much interest there will be in staking. Since other factors such as community tax, bonded tokens ratio, and validator’s commission charge must also be considered, the actual APR may be slightly lower than the nominal APR that is typically shown. However, depending on the inflation, the total profit may be higher than the APR prediction after the network’s transaction fee is distributed.
To sum up, the main difference between APY and APR is that the former also takes into account the compound interest. Cryptocurrency savings account with APY, as can be seen on the EGG platform, can allow an investor to generate a return on investment while maintaining it. With regards to APR, it can vary depending on the type of loan or currency that is lent out. When used in staking, it also refers to the inflation income of staking profit.