APY (Annual Percentage Yield)
The yearly interest rate including compound interest. Shows what you'd earn if rewards were automatically reinvested for a full year.
Example
A 10% APY means $1,000 becomes $1,100 after one year with compounding. APR would be lower without the compounding.
Related Terms
Advanced Concepts
⚙️How It Works
- 1
Base Interest
You earn a base interest rate on your deposited funds
- 2
Compounding
Interest is added to your principal at regular intervals
- 3
Interest on Interest
New interest is calculated on the larger balance
- 4
Annualized
The rate is projected over a full year for easy comparison
📊Key Numbers
365x/year
Daily Compounding
common in DeFi
2-5%
Conservative Stablecoin
typical safe yields
2x
100% APY
doubles in 1 year
>100%
Red Flag
unsustainable, high risk
⚖️APY vs APR
| Feature | apy | apr |
|---|---|---|
| What it measures | Total return with compounding | Simple interest rate |
| Compounding | Included | Not included |
| Which is higher | Usually higher | Usually lower |
| Best for comparing | Savings/staking | Loans/borrowing |
🔍Common Misconceptions
✗Higher APY is always better
✓Higher APY usually means higher risk. Those rewards come from somewhere - often your own principal via impermanent loss or token dilution.
✗APY is guaranteed
✓DeFi APYs are variable and can change by the minute based on demand, token prices, and protocol incentives.
✗50% APY means 50% in 6 months
✓APY is annualized. If you only stake for 6 months, you'd earn approximately 22.5% (due to compounding math, not simply half).