APR vs APY: Why do you earn differently with the same Interest?

Many people invest or borrow money, and when they see the Intrerest Rate, they jump right in. However, there is a pitfall hidden here – APR and APY look similar, but the difference can significantly affect your returns.

APR is simple Interest Rate, APY is the real yield.

APR (Annual Percentage Rate) = Interest calculated only on the principal, not considering compound interest. For example, if you borrow 1000, with an APR of 15%, you will pay 150 in interest for a year, quite straightforward. This is used for credit cards, mortgages, and consumer loans.

APY (Annual Percentage Yield) = Taking compound interest into account. Interest earns interest, and each time interest is calculated, it is added to the principal. With the same 15% APY, if calculated daily, you will actually earn significantly more than 15% APR.

Numbers Speak: How Big is the Gap?

Assuming you invest 1000.

• 15% APR = Earn 150 a year (that's it)
• 15% APY compounded daily = Earn approximately $161 per year (an extra $11, sounds small? The difference becomes significant with larger amounts)

The more frequently interest is compounded (daily > monthly > quarterly), the more pronounced the difference between APY and APR.

When to look at APR and when to look at APY?

📌 Check APR: Credit cards, mortgages, auto loans (the ones you need to pay back) 📌 Check APY: Bank fixed deposits, funds, Staking, wealth management products (that you want to profit from)

Conclusion: When investing, don't just look at the nice APR number, ask what the APY is — that's what you can actually get.