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What is APY? Learn the most basic information related to APY

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Welcome back to channel. Recently we have received many questions from many brothers. Especially the questions it keeps are similar, like what is APY These questions have mostly been of particular interest to newbies since the beginning of 2021, when DeFi movements emerged and became increasingly popular. Therefore, today we decided to compile this article to help you answer the above question most accurately.

What is APY?

APY is the annual rate of return from a financial investment, factoring in accrual or balance growth. Compound interest consists of the interest earned on the original deposit, plus the interest earned on that interest.

While it is often paired with traditional savings, APYs are an important metric for crypto savings programs and the like. Crypto investors can earn APY on cryptocurrencies by staking, depositing them in savings accounts or providing liquidity to liquidity pools through financial profit mining.

You can quickly start earning APY from your crypto, via crypto exchanges, wallets and DeFi protocols.

Normally, investors will earn interest in the same cryptocurrency they deposited. However, there are sometimes cases where they can be paid in the same currency or a different one.

How to calculate APY?

For you to understand better, I will explain more clearly how to calculate APY as follows:

APY = (1 + r/n)^n – 1

In there:

r is the recurring rate of return (this is referred to as the annual APR).

n is the number of billing cycles in a year.

For example, I will calculate with r rate of 55.44%, then I will have a way to calculate APY = (1+ 55.44%/365)^365 – 1= 74.02%.

Find out what is the annual percentage return (APY) ?

If you want to understand APY’s annual percentage return, you must first learn the difference between simple interest and compound interest.

Simple interest and compound interest

Simple interest is the interest earned on the initial deposit, while compounding is a process of adding interest earned each period, both the original investment and the reinvested earnings (hereinafter referred to as the interest rate). is the profit earned from the previous period).

To better illustrate these concepts, we will provide an example as follows:

You have $100 and you lend it to someone at 10 percent annual interest in October 2021. In October 2021, you hope to get your money back and receive an interest of $100.

The amount you get after one year equals: 100 * (1 + 10%) = $110

Now let’s look at another case. In this case, you also have $100, which you lend to your friends at 10% annual interest and semiannually compounded loan.

For the first 6 months you will have an amount of: 100 * (1 + 5%) = 105 ($)

The amount you get after one year equals: 105 * (1 + 5%) = 110.25 ($)

So at the end of January 2021 when you get your money back you will get 25. This XNUMX cent is the magic of compound interest.

Aggregation will allow you to produce money over time, which is why it is such a powerful investment tool. This shows that it is not the same as simple interest. The term “simple interest” refers to the interest earned on the principal deposit.

Notes on calculating profit based on APY

Here are some notes when calculating profit based on APY.

Compound interest term

Compounding periods can be daily, weekly, monthly, quarterly or annually depending on the platform. Therefore, compounding regularly can help you make a lot more profit, but if the APY the platform offers is less than 100%, the compound interest may not be significant.

Transaction fees

In fact, not all platforms charge the same fees. Fees are usually not mentioned in the APY. However, you should also be careful about these fees as they can greatly deplete your profits.

Exchange rate change

If you choose a fixed APY, your profit will not change over time. But with the DeFi space, APY will often change and fluctuate according to the financial market situation. Therefore, you must pay attention to the interest payment period and the periodic interest rate in order to capture the return on your investment.

So, together, we have learned the concept of Apy, what is Apy? The most accurate basic information related to Apy. Understanding this basics in DeFi will somewhat help you manage your investment better, as it has a big impact on how much you earn or pay. Follow us regularly for more useful and interesting information. Wishing investors successful application


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