I just recently understood what apr really is, because many people in crypto are interested in staking or yield farming and see APR and APY mixed up—so I got confused about how they differ.

Actually, apr is the ordinary annual interest rate. There’s no compounding. If you invest 100 baht at an APR of 5%, you’ll get 5 baht in that year—done. There’s no additional interest earned from other interest. But APY (Annual Percentage Yield) is the real problem, because it takes compounding into account. That means the interest you receive will be compounded again, making the actual return higher than the same apr number.

Let’s use an example. If apr is 6% per year and you invest 10 BTC, in the first year you’d gain an additional 0.6 BTC—easy enough. But if the APY is 6% compounded daily, it’s higher—around 6.18%—because as each day passes, the new interest is calculated based on the principal plus the interest you’ve already earned. The more frequently it compounds, the higher your returns get.

In the crypto world, apr is the interest you earn from staking or lending through a DeFi platform with no compounding. If you stake 1 ETH at an apr of 24% all year, you’ll earn an additional 0.24 ETH—straightforward, with no hidden fees, because crypto interest calculations are more transparent than traditional finance systems.

But APY is what most people prefer, because the actual return is higher. Some DeFi platforms offer daily interest, meaning every 24 hours, the new interest is added and compounded on top. If you leave it for 3 years, the returns will keep increasing through a Compound Effect.

Calculating it isn’t that difficult. apr is just a number multiplied by time. For example, apr 6% per year equals 0.5% per month × 12 months = 6%. For APY, you need a slightly more complex formula because it accounts for the number of compounding periods, but don’t worry—there are plenty of online calculators available right now.

The most important difference is that apr is the number that looks good to borrowers, while APY is better for investors. If you’re borrowing, you want the apr to be as low as possible. But if you’re investing, you want the APY to be as high as possible. In crypto, returns are often much higher than traditional finance, but the risk is higher too.

A real example: suppose you invest 10,000 baht at 5% apr per year. In the first year you’ll earn 500 baht. In three years, that totals 1,500 baht. But if APY is 5% compounded annually, in three years you’ll get 1,576 baht—more by 76 baht—because of compounding. The longer the period, the bigger the difference.

In summary: apr is the basic number with no compounding, so it’s commonly used in finance. APY is the real figure because it accounts for compounding. If you have to choose between 6% apr and 6% APY, pick APY every time because the returns will be better, especially in the long run.