APR is the interest rate calculated as an annual interest rate and APY is a measure of the interest rate you get after you have deposited your savings. In this way, they seem similar, but in reality, they are completely different.
As participants in the Yield Farming market, if you understand the difference between APR and APY, as well as APY coin, you will have the best way to manage your money. We are here to help with that. Our article will give you a brief explanation of what APR and APY are before highlighting their major differences.
What Is APR?
APR – Annual Percentage Rate is the rate of interest paid on an investment loan every year. The Annual Percentage Rate represents the annual cost of the loan. It includes all costs associated with the transaction but is not compounded.
What Is APY?
APY – Annual Percentage Yield is the actual annual interest rate, with the effect of compounding. Unlike simple interest, compound interest is calculated periodically and this amount is added to the balance immediately. Over time, the balance will increase a bit, so the interest paid on the balance will also be higher.
Difference Between APR vs APY
Both APR and APY are used to measure interest rates. However, the difference is that APR measures the interest charged and APY measures the interest earned.
The APR will be associated with the credit account, the lower the APR on your account, the lower the overall loan cost. And vice versa.
APY is combined with a deposit account, if on your account, the higher the APY, the higher your income. Your earnings will be dependent on the amount in the account you have, not just the APY account base.
Example Comparison Of APR vs APY
Each month, a credit card company charges 1% interest, then APR = 12% (12 months x 1% = 12%). As for APY, compound interest can be taken into account.
The monthly compound interest APY will be 12.86% ((1 + 0.01) ^ 12 – 1 = 12.68%) of a year. If you only leave the balance on your card for 1 month, the fee you will have to pay will be equivalent to 12%. But, if you carry that balance within 1 year, the interest rate will be up to 12.86% of the cumulative monthly rate.
Borrower’s View Of APR vs APY
When you want to borrow money or want a mortgage, you want low-interest rates to have a realistic picture then you need to understand the basic difference between APR and APY.
For example, if you apply for a loan, you can choose a lender from many lenders, however, that person will make you pay a higher price than you initially thought. Because your lender will show you the APR, not the APY.
Lenders’ Perspectives On APR vs APY
As a lender, you always want to look for banks or institutions with high-interest rates, but in reality, banks or financial institutions will often hide the APR and advertise the APY instead to attract lenders because of the amount of interest associated with that source of finance.
That’s why this is how both APR and APY show their differences. The difference between these two ratios plays an important role in influencing the financial decisions of investors and borrowers. In fact, financial institutions highlight APY to attract investors and show how high the returns are. Meanwhile, when you take out loans, the APR will be highlighted to hide the actual cost that the individual has to pay. Therefore, whatever form you follow, you must respect and implement that form, do not compare APR and APY because it will not give you a picture suitable for each situation.
How To Make The Right Money Management Decisions
The APR and APY are both useful tools for deciding which deposit and credit accounts are right for you. However, before making a final decision, there are a few things to keep in mind:
- How often is interest compounded: Interest is compounded daily, weekly, monthly, quarterly or annually. Regular compounding will make your investment more profitable and cost more to your credit account.
- Check the hard copy of the paperwork: Check to make sure you understand the terms and cost issues. In APR, not all credit accounts have the same fees. And the deposit account may also have fees not included in the APY.
- Does the rate change: If your rate is fixed, it won’t change. But if it does change, it will be a big change. If you have an APR, make sure you know how long it lasts, what the price ratio will be,… Remember, the APY for a deposit account will vary and fluctuate with the market. .
- Which APR you can apply: Each credit account has a different APR, which will result in different types of transactions.
Farm Strategy
One strategy you can use for easier farming is to convert APY and APR into APRD.
APY needs time and asset price stability to achieve the desired results while APR is more realistic since it is the profit that we can quickly get in hand after getting started. We are real farmers, not long-term dreamers in this volatile field. So the first thing we see when we see a new farm is to convert APY into APRD (APR in days) to compare with different farms before deciding.
You can calculate APR from APY here. Remember to choose the compound frequency as daily. Taking the APR / 365 will output the APRD.
Conclusion
Understanding APR and APY as above, we have an important conclusion:
When calculating according to APR, we will get a fixed interest rate that occurs immediately after farming. And the interest rate according to APY will increase gradually over time, the higher the end, the higher the rate, while the first stage will only be equivalent to APR.
After reading this post, you need to always remember that APR or APY are two of the factors to consider when choosing a deposit or credit account. Understanding these two categories will help you make the right decision, your financial resources will increase.
Hopefully what we shared above has helped you understand APR, APY and their basic differences.