Cryptocurrency APY (annual percentage yield) is a great way to make the most out of your digital assets. It allows users to earn interest on cryptocurrency holdings, without the need to actively trade or manage them. This article will guide you through everything you need to know about the APY meaning, its benefits and how it compares to the annual percentage rate.
What is Annual Percentage Yield
Annual Percentage Yield (APY) is a metric used to measure the total return on an investment over a period of one year and this takes into account both the interest rate earned as well as any compounding of the interest.
APY is expressed as a percentage and calculated by dividing the total interest amount earned over twelve months by dividing it by the principal amount invested. So, for example, if you invest $2,000 at an APY of 5%, you would earn $100 in interest. The APY calculation also takes into account any fees or charges associated with the investment, so it can be used to compare different investments and determine which one will yield the highest return.
Benefits of Cryptocurrency APY
Cryptocurrency APY is a great way to unlock the benefits of high-yield returns. This is because, as mentioned previously, it allows investors to earn interest on their cryptocurrency holdings without having to actively trade or manage their investments.
It is possible to earn up to 10% or more in annual returns, but this is dependent on the type of cryptocurrency and the platform used. For this reason, it is an attractive option for those users looking for higher yields than those found in traditional savings accounts or other investment vehicles.
In order to get started, you’ll need to open an account with a crypto exchange that offers this particular service. Then, when your account is set up, you can deposit funds and start earning interest immediately. You can also choose which cryptocurrencies you want to invest in and how much of each one you want to hold.
Difference Between Cryptocurrency APY and APR
The main difference between APY and APR is that APY measures the return on investments, while APR measures the cost of borrowing.
APY takes into account compounding interest, which means that it reflects the total amount of interest earned over a period of time. On the other hand, APR does not take into account compounding interest and only reflects the cost of borrowing for a given period.