APY vs APR: what's the actual difference
In one line: APR is the simple-interest annual rate, with no compounding; APY is the compound annual yield, with interest-on-interest included. At the same rate, the more often you compound, the more APY exceeds APR.
Two terms, divided by one word: compounding
APR and APY describe two ways of computing the same interest; the only dividing line is whether interest-on-interest is counted in.
APR stands for Annual Percentage Rate — the simple-interest annual rate. It assumes the interest you earn just sits aside, untouched, with only the original principal earning yield. A 10% APR means your principal is 10% larger after a year, plain and simple, ignoring any interest that would itself earn interest along the way.
APY stands for Annual Percentage Yield — the compound annual yield, which Investopedia defines as the real rate of return earned once compounding is taken into account. It counts in the fact that interest also earns interest: the interest you receive at intervals (daily, weekly) gets added back to the principal and keeps compounding. So at the same nominal rate, APY reflects what you actually pocket after interest-on-interest.
A small 10% example
Turning the abstract definitions into numbers is the clearest way to see it. Say the nominal annual rate is 10% and the principal is 1000 USDT — here's the difference after a year at different compounding frequencies.
| Method / compounding frequency | Principal + interest after a year | Effective annual rate |
|---|---|---|
| APR (simple, no compounding) | 1100.0 USDT | 10.00% |
| Compounded monthly | 1104.7 USDT | ≈10.47% |
| Compounded daily (APY) | 1105.2 USDT | ≈10.52% |
At the same 10% nominal rate, daily-compounded APY is roughly 10.5%, and that extra half a point over the simple-interest APR comes entirely from interest earning interest. The larger the principal, the longer the time, and the more often you compound, the more obvious the gap gets. That's also why marketing loves APY — it looks higher, but only if the interest is actually reinvested.
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Which one you see on the exchange page
Flexible savings on reputable exchanges like Binance and OKX mostly show a floating APY or "reference rate." Two keywords to watch: first, "floating," meaning the number changes daily with supply and demand in the pool — 4% today, 3.6% tomorrow is normal, and it's not a locked-in promise; second, "reference," meaning it's estimated from current conditions and doesn't guarantee you'll get the full amount. Fixed-term products, by contrast, often lock in a rate when you subscribe, and are relatively more certain.
One practical rule: when comparing products, keep the measure consistent. Don't pit a product quoting APR directly against one quoting APY — that's comparing simple interest to compound interest, and you start out at a disadvantage. When in doubt, convert both the nominal rate and compounding frequency to the same basis before comparing.
FAQ
Which is higher, APY or APR?
Given the same nominal rate and that the interest is reinvested, APY is equal to or higher than APR. APR is simple interest with no compounding, while APY rolls interest into interest, so the more often you compound the more APY exceeds APR; they're only equal when interest is settled once a year with no further compounding. At the same 10% nominal rate, compounding daily gives an APY of about 10.5%.
Why does the page say APR but I actually get APY?
If a product automatically reinvests interest back into the principal, what you actually pocket is the compounded APY, yet the page sometimes only labels the nominal APR (simple interest). The other way round, marketing tends to show APY because it looks higher — but only if the interest is genuinely reinvested. Check whether the product auto-compounds and which measure it labels, so you don't misjudge your real return.
How do you convert between them?
Conversion depends on the compounding frequency n (how many times a year it compounds): APY is roughly (1 + APR / n) to the power of n, minus 1. Daily compounding means n = 365, monthly means n = 12. When comparing products the safest approach is to use one consistent measure — look at APR for all of them or APY for all of them — and never compare a simple-interest number directly against a compound one, which would put you at a built-in disadvantage.
Risk note
The APY/APR on a page is mostly a floating reference figure, not a locked-in return. Crypto asset prices swing wildly and earn products are not principal-protected; in extreme conditions the platform, smart contracts and the coin price can all cost you part or even all of your principal. This piece is for educational reference and is not investment advice.
Put compounding to work on yield you can explain
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