What is APY in Crypto and How to Calculate Your Crypto Interest

If you've opened a savings account at a bank, you've probably seen the term "APY," which stands for "Annual Percentage Yield." It tells you how much you will make on your investment over the next year if you don't take out or move your money before then.

A higher APY means a higher return on your investment, but if the number is too high (like 200%), you might want to avoid these projects because they're too risky for an investor who wants a safe investment with stable returns.

What you'll learn in this article about how to figure out crypto APY:

• What is APY
• How to calculate APY
• Why the APY for cryptocurrencies is higher than for banks
• How APY and APR are different

What is APY?

The annual percentage yield (APY) is your return on an investment over a year. It takes into account the interest you earn on top of what you put in at the beginning. This means that you'll get interest on the money you put in at first, as well as interest on the interest you get on that.

The APY works the same way in crypto savings plans and DeFi liquidity pools. For example, if you put $1,000 USDT into a crypto interest account with a 5% APY, you'll get back $1,050 USDT a year after you put the money in.

Calculate Crypto Interest with a Crypto APY Calculator

The easiest way to figure out your yield based on APY is to multiply the value by the amount you put in.

If you want to break down your overall APY into specific time periods, like one week, here's an easy way to figure out how much interest you're earning every 30 days on a 5% APY 30-day plan with an initial deposit of 1,000 USDT.

• Interest = (Principal X APY / 365)  X Period
• Interest = (1,000 X 0.05/365) X 30
• Weekly interest ≈ 4.10 USDT

This means that if you take out your money after a week, you'll only get about 4.10 USDT in interest because your interest won't be added to your balance and make it grow. On the other hand, if you don't take out your money for a year, interest will be added to your balance every week, and the amount of interest you earn will keep going up as the year goes on.

What does 7-day APY mean in cryptocurrency?

In traditional banking, interest is usually compounded once a month. Most crypto institutions have shorter compounding periods, with 7 days being one of the most popular ones. These shorter periods are sometimes chosen for the following reasons:

• The high volatility of cryptocurrencies may be too risky or unattractive for some investors, and shorter compounding periods allow them to reduce the effects of price swings.
• Investors can check to make sure that the annual percentage yield is the same as what the bank says it is and that no tricks are used.
• Shorter compounding periods are good for investors who aren't sure if they want to invest in cryptocurrency yet and want to try this type of investment first.

Other popular times are 14 and 30 days. Even so, APY is still calculated on a yearly basis.

Why Is the APY So High in Cryptocurrency vs Traditional Investments?

Traditional banks offer APY that is much lower than what crypto wealth management platforms offer. There are a lot of reasons why:

• APY is lower at traditional banks and online banks than it is in the cryptocurrency space. On average, savings accounts at banks offer 0.28%, while loans are given at 2% to 3%. When it comes to cryptocurrency, especially cryptocurrency savings accounts, the annual percentage yield (APY) can reach 6%, since loans are usually given at rates between 5% and 8%.
• The APR in crypto goes up because there are fewer rules and the market is more volatile. The APY goes up because the APR is based on the type of cryptocurrency and its market capitalization.
• Most of the time, interest rates in crypto are set by institutions that are active in the space. Higher APR and APY come from the fact that the space has bigger risks and bigger profits. This trend is kept going by cryptocurrency exchanges that offer loans at similar rates.

 

What Can I Do If My Savings Platform Cuts My APY Earn Rates?

A savings platform recently cut their APY earn rates without warning, in some cases by almost half. This made crypto investors angry because their investments were now much less profitable.

Let's talk about what you can do as an investor.

If you have already locked up your cryptocurrency for a certain amount of time, you will have to wait it out. As part of your original plan to invest, you may have also staked some of the platform's native tokens to boost your interest rate.

Start by keeping an eye on the value of the platform's native tokens to see if they are worth keeping even if you no longer use the platform. If the price isn't stable or is going down, you might want to stop investing in those tokens and look for a platform that gives you a return without making you deal with the volatility of platform tokens.

It's also time to look into other ways to save money to find one that fits your needs better. In the table below, you can see some things to think about when choosing a platform for your crypto investments:

What is APR?

The first thing a borrower wants to know is the APR. Most of the time, the APR is the percentage on a loan product, which is the price a person has to pay each month to get the loan. It's figured out by:

APR = Periodic Rate x Number of Periods in a Year

Most of the time, the APR is listed on credit products like credit cards and mortgage loans from banks. If you are looking for a loan, you would want the APR to be as low as possible. This means that the loan costs the least.

Difference between APY and APR?

To put it simply, APY is about making money by lending it, while APR is about spending money by borrowing it.

If you're the one lending money, whether through P2P or a savings account, you'd want the highest APY because that means you'll get the best return on your investment. But the APY on your deposit accounts can change based on the market, so make sure you're aware of any changes.

If you're a borrower, you'd want the lowest APR because that means you'll pay less interest on your loans. If your APR rate is fixed, it won't change very often. But if you signed up for a loan with an introductory APR, you'll need to find out how long it will last and what your rates will be after the introductory rate is over.

APRs also show the simple interest rate over a year, while APYs show the interest that you earn on your interest.