The difference between APY and the simpler APR comes down to compounding. Compounding means reinvesting your returns so that they, too, start to earn, gradually snowballing over time. APY captures this effect, so it reflects what you would actually earn across a year if rewards are compounded at some frequency. For the same base rate, more frequent compounding produces a higher APY, which is why the figure usually sits a little above the equivalent APR for an identical underlying rate.
A quick illustration makes it concrete. A ten-percent rate compounded monthly works out to roughly 10.5 percent APY, because each month's reward is added to the balance and then earns a little extra itself the following month. In crypto, staking and DeFi platforms often advertise APY specifically because it showcases this compounded potential, and some products automatically compound rewards on your behalf so you do not have to reinvest manually.
The same honest warnings that apply to APR apply here in full. Crypto APYs are frequently variable and can change with market conditions, and rewards paid in a volatile token can swing wildly in value no matter how attractive the headline percentage looks. An eye-watering APY usually signals eye-watering risk. Treat these numbers as estimates, understand the underlying product, and remember that Crypto House offers education, not investment advice.
Key takeaways
- APY is an annual return that includes compounding, where rewards are reinvested and earn further rewards.
- For the same base rate, more frequent compounding gives a higher APY, so it usually exceeds the equivalent APR.
- Crypto APYs are often variable and paid in volatile tokens, so a very high figure typically signals high risk.
APY — questions fréquentes
Why is APY usually higher than APR?
Because APY includes compounding, the effect of your rewards earning further rewards, while APR does not. The more often returns are compounded, the higher the APY climbs above the simple annual rate for the same underlying figure.
Are crypto APYs guaranteed?
No. They are usually variable and can change with market conditions, and rewards paid in a volatile token can fall in value regardless of the percentage. A high advertised APY is only an estimate, and it often comes attached to high risk.
New to crypto, or filling in the gaps? Work through the essentials in Learn, browse every term A–Z, or see live prices for the coins these concepts power.