Annual Percentage Yield (APY)
An annual percentage yield (APY) account functions similarly to an annual percentage rate (APR) account as a cryptocurrency savings account. You can deposit bitcoin (or another crypto asset) and get a predetermined rate of return over a certain time period.
The annual percentage yield (APY) is a technique of estimating how much money a money market account earns over the course of a year. To put it another way, this is a method for tracking the accumulation of interest over time.
The following formula is used to determine APY:
APY= (1 + r/n)n – 1
Here, "r" is the specified annual interest rate and "n" is the number of compounding periods each year.
The effective annual rate, or EAR, is another name for APY.
When the APY equals the interest rate paid on a person's investment, he receives simple interest. The interest is compounded when the APY is more than the interest rate, which means the person receives interest on his interest.
People frequently mix up APY with APR. The annual interest rate without compounding interest is referred to as the APR. APY, on the other hand, considers the impact of compounding within a year. The distinction between the two can have significant ramifications for borrowers and investors.
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