If you’ve been involved in crypto or investing in DeFi platforms for a while, you’ve probably seen the terms APR and APY all the time. But do you know that these two are actually different, and they significantly affect your profits?

Let’s start with the basics. APR stands for Annual Percentage Rate, which is the simple interest rate that tells you how much your principal will earn in one year. For example, if the APR is 5%, investing 100 baht means you’ll get 5 baht back. In the case of borrowing money, APR is the amount of interest you need to pay back in addition over one year.

This is important: APR does not account for compound interest. Interest is calculated only on the principal, so the returns are quite straightforward.

In the crypto world, APR refers to the total interest you earn from staking or lending digital assets over a year. There are no hidden fees; it’s just calculated based on the initial loan amount. For example, if you invest 1.0 ETH in a lending pool with an APR of 24%, you will earn an additional 0.24 ETH after one year, totaling 1.24 ETH.

So, what is APY? APY (Annual Percentage Yield) includes compound interest. This is the key point because you earn interest on your interest, not just on the principal. In crypto, compounding happens very quickly—sometimes daily—meaning your interest earns interest again.

If you convert a 6% APR to APY with daily compounding, it becomes 6.18%. The difference seems small, but over time, it accumulates significantly.

Let’s look at a real example. If you invest 10,000 baht at 5% APR for 3 years, using APR alone, you’d earn 1,500 baht. But if you calculate with APY compounded annually, you’ll get 1,576.25 baht. That’s a noticeable difference.

Summary of the difference: APR is suitable for borrowers because they pay less, while APY is better for investors because they earn more. If you’re saving or staking crypto, you should focus on APY, as that reflects the actual returns after compounding.

In the crypto space, there are many free tools available to do these calculations. No need to mess with formulas yourself—just input the numbers, and it will do the math for you. The important thing is to understand how APR and APY differ and choose the right one based on your situation.