The difference between APR and APY

The Annual Percentage Rate represents the current interest rate for your capital. The Annual Percentage Yield takes into account the compounding interest and is the resulting interest rate after a full year.

In other words, APY factors in the interest that is added to your total balance over time.

For example, let’s consider the APR is 5% for a $10,000 investment. The interest is compounded every block or second for most of these services. In a year, you would have earned $512.71, not $500, because the interest that compounds each block is based on the current balance at the time, factoring in the already compounded interest. Thus the APY ends up being 5.12%.