If you’re just getting started with crypto, you’ll probably see terms like APY and APR everywhere. However, surprisingly few people truly understand what they actually mean and why they’re so important.

Let’s explain what APR is. APR stands for Annual Percentage Rate, and you can think of it as a simple interest rate that does not take compounding into account. For example, if you invest $1,000 in a project with an APR of 10%, you’ll earn $100 in profit after one year. It’s a straightforward calculation.

But here’s the catch: since APR does not include compounding, even as time passes, the interest won’t create more interest. In other words, your returns only increase in a straight line. In the crypto world, this is commonly used by lending protocols and staking rewards that don’t automatically compound.

By contrast, what is APY? APY stands for Annual Percentage Yield, and it shows the actual return rate including the effects of compounding. The biggest difference from APR is right here. With APY, every time you earn interest, that interest may generate even more interest.

If you deposit the same $1,000 at 10% APY compounded daily, your earnings will grow at an accelerating pace over the course of the year, ending up at just over $100. In crypto, protocols calculating compounding daily aren’t uncommon, so this effect can be quite powerful. In staking and DeFi pools, APY reflects actual earnings more accurately.

To sum it up: APR is a fixed interest rate without compounding, while APY is a realistic return that takes compounding into account.

This is especially important in crypto investing because it enables accurate profit forecasting. When investing in DeFi platforms or staking assets—especially when compounding happens daily or weekly—looking at APY helps you understand how much you can actually earn. On the other hand, for loans or deposits that don’t compound, APR is enough.

If you want to aim for higher returns through compounding, you should look for investments that offer APY. For simple interest products, checking the APR gives you a clear picture without any extra calculations.

To answer common questions: in crypto, APY can change frequently. That’s because the rates are adjusted based on protocol policies and market demand, so you need to check regularly. APY is higher than APR because it includes the effect of compounding. And the more frequently compounding occurs, the higher the yield can become over time compared with APR.

Where can you get APY? You can find it on many DeFi platforms and staking programs. It’s offered for a variety of assets, such as ETH, BTC, and stablecoins. Many major exchanges and platforms also provide APY through their Earn products, so there are plenty of options.

Finally, this information is for educational purposes only and is not investment advice. Before making any investment decisions, be sure to do your own research and, if necessary, consult a financial advisor.