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%.