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What is the Annual Percentage Yield (APY)?

When looking for financial services and products, you need to understand various terms for different products. And if you have already opened a savings account in conventional banks or just ventured into crypto, you’ve probably crossed the term Annual Percentage Yield (APY).

Many people can tell you that a higher APY is better than a lower one. Others may say that the best thing about cryptocurrency is the high APY you can receive.  But when asked, “What is APY in crypto?” most of them may not help. Although it may sound complicated, APY isn’t a difficult term to understand.

Read on to understand the concept of APY, how it applies in crypto, and investment opportunities associated with APY.

What is APY?

The annual percentage yield determines the interests you earn on your savings account over one year, factoring in the effects of compounding interest accrued. Compound interest is the interest earned from the principal investment plus the interest earned on interest.

Although commonly associated with conventional finance, APY works similarly with crypto savings elements. You can earn APY on your crypto account by investing in savings accounts, staking them, or providing liquidity to liquidity pools through yield farming.

The interest accrued on your investments is known as compound interest. This includes the amount you earn on your initial investments and the interest accumulated over time. Compounding is an important way of creating money over time and a robust instrument for investment.

If you’re a crypto investor or interested in crypto and still figuring out how to earn money on your investments, saving accounts with APY may be what you need to get the best returns on your investments. Fortunately, there are a wide variety of yield programs to choose from. So choose the best for you and start earning your interests.

What is the Difference Between APR and APY?

Annual Percentage Rate (APR) and APY can be confusing terms in the crypto field and appear similar as both involve interest. While some people use APR and APY interchangeably, the two concepts are totally different.

APR refers to interest earned over a period without considering compounding interest.

The primary difference between APR and APY is that APR does not take into account compounding interest, while APY does. Additionally, APR is determined using simple interest and includes the cost of investment. Since APY involves compounding, it always produces a higher interest rate than APR. This makes APY a superior option — it can earn you better returns on savings.

A high APR on debt may attract higher interest. This implies that the APR you’ll have to pay is associated with your credit score. If you have a good credit score, you can qualify for a lower APR, but if you have a poor credit score, you can incur a higher APR. However, APY does not consider your credit score. Instead, if you have a higher percentage on your deposit, you attract higher interest.

Since crypto transactions do not involve credit scores, APR is affected by market fluctuations. In crypto, both APY and APR increase with high demand and decrease in stable markets.

How Does APY Works in Cryptocurrency? 

APY in crypto differs significantly from traditional finance. In traditional finance, you earn interest based on the dollar value of your investments. But, in crypto, you earn interest depending on the amount you have invested over a period.

For example, if you deposited one bitcoin with an APY of 5%, you would earn 0.05 BTC in interest annually. Fluctuating the value of the bitcoin would not impact the interest value you receive.

As mentioned earlier, staking investments or providing liquidity to liquidity pools can efficiently generate compounding interest on your crypto. You can access these interest-generating activities on crypto wallets, crypto exchanges, DeFi protocols, and blockchain.

What Crypto Investments Involve APY?

Various crypto investments involving APY include:

  • Yield farming. This involves lending your crypto to liquidity pools across platforms to earn more crypto. The best strategy for better APY is to move your crypto across various platforms in a bid to establish the one with the highest yield.
  • Crypto lending. This type of lending allows you to generate interest using them for short-selling, arbitrage, or other uses. With crypto lending, you can lend out your money to borrowers and earn interest for a particular APY over the loan tenure. Therefore, it is important to compare different crypto lending platforms to get the best APY for your holdings.
  • Crypto staking. You can generate rewards by validating transactions on the blockchain through networks like Ethereum 2.0. Staking implies locking your crypto for a specified period. This allows you to take part in securing such networks and generating more interest.

Get the Best APY for Your Crypto Holdings with blockbank

blockbank is a mobile banking application that combines centralized finance (CeFi) and decentralized finance (DeFi) and seamlessly integrates with crypto and blockchain. blockbank is a critical tool if you want to receive access to modern banking services and generate better APY than in traditional finance.

blockbank app allows you to hold your blockchain assets in a non-custodial, cross-chain cryptocurrency wallet. blockbank is convenient for experienced traders and newcomers in crypto. The tiered reward system on the app can give you up to 20% APY.

Here are some of the staking reward tiers you can get blockbank:

  • Tier 1: 1+ $BBANK staked in wallet gives you 2% APY on staked Tokens; 2% APY on BBANK tokens.
  • Tier 2: 5,000+ $BBANK staked in wallet give you 4% APY on staked Tokens; 6% APY on BBANK tokens.
  • Tier 3: 25,000+ $BBANK staked in wallet gives you 6% APY on staked Tokens; 9% APY on BBANK tokens.
  • Tier 4: 100,000+ $BBANK staked in wallet give you 8% APY on staked Tokens; 12% APY on BBANK tokens.
  • Tier 5: 500,000+ $BBANK staked in wallet give you 10% APY on staked Tokens; 20% APY on BBANK tokens

Most of the current CeFi platforms can be complicated for newcomers in crypto. Legacy systems can be convenient but are costly, attract low interest, and are inflexible to changing financial trends. Are you a crypto enthusiast male aged between 18-35 wondering how to earn interest with crypto? Worry no more!

blockbank can remove the barriers to investment by combining familiar mobile banking experience with important features of CeFi and cryptocurrency. blockbank can bring you closer to CeFi opportunities and banking services. It can add a layer of security to your investments, create AI-enhanced risk management and improve usability. This allows you to earn better APY on your holdings.

Contact blockbank support to learn more about returns on investments in cryptocurrency.

Key Takeaways

  • Annual Percentage Yield (APY) calculates interest earned on your savings, including compounding interest in one year.
  • APY takes into account compounding interest while APR doesn’t.
  • Crypto investments that count in APY include yield farming, crypto lending and crypto staking
  • blockbank is a mobile banking application that integrates crypto and blockchain. It allows access to banking services and better APY on your investments.
Author: The blockbank team
Article Posted in: Articles
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