APY, APR, and the four other things that change your rate

The actual difference

APR — annual percentage rate — is the simple annual rate. Deposit $1,000 at 10% APR with no compounding and you have $1,100 a year later.

APY — annual percentage yield — is the effective annual rate once compounding is accounted for. Deposit $1,000 at 10% APR compounded daily and you have about $1,105 a year later, because each day's interest starts earning interest of its own. Expressed as APY, that is 10.52%.

The size of the gap depends entirely on the rate. It is small at the levels most crypto savings products actually pay, and it grows quickly at the advertised maximums.

The conversion, with numbers

The formula is straightforward: APY = (1 + APR/n)ⁿ − 1, where n is the number of compounding periods per year. Daily compounding means n = 365; monthly means n = 12.

Going the other way — APY to APR — is APR = n × ((1 + APY)^1/n − 1).

In practice you rarely need to do this by hand. Our earnings calculator handles both conversions, and the more useful habit is simply to notice which measure a platform is quoting and to be suspicious when it is not stated.

One thing worth knowing: platforms tend to quote whichever number is larger. DeFi protocols often genuinely compound continuously and quote APY honestly. Centralised platforms advertising a high headline will usually quote APY even where the product does not compound, which is where the next section becomes important.

Payout frequency is not the same as compounding

This is the distinction that trips people up, and it is entirely reasonable to be confused because platforms use the terms loosely.

Accrual frequency is how often interest is calculated. Payout frequency is how often it is credited. Compounding is whether credited interest then earns interest itself.

A product that accrues daily and credits monthly does not compound daily — it compounds monthly at best, and if the interest is credited to a separate wallet that does not itself earn, it does not compound at all. Several exchanges work exactly this way while quoting an APY that assumes compounding.

Among the platforms we track: Nexo compounds daily and credits to a Savings Wallet that continues earning. Several exchanges accrue daily and pay daily into the earning balance. Crypto.com and YouHodler pay weekly. Ledn pays monthly. Staking rewards distributed monthly generally do not compound unless you restake them, which some platforms do automatically and others do not.

Four complications that do not exist in ordinary finance

Promotional tranches. A rate that applies to the first $200 and then drops. This is the single largest distortion in crypto rate comparison. One venue advertises 8.2% to 11% on USDT and pays about 3.2% above roughly $200, producing a blended 3.5% on a $5,000 balance. No APY conversion will surface that — you have to read the cap.

Commission on gross rewards. Exchange staking commonly quotes the gross network reward and deducts 25% to 35% separately. Kraken advertises up to about 8% on SOL against a net figure closer to 4.71% in-app. A 33% commission is worth vastly more than any compounding difference.

Tier conditions. A top rate requiring a $5,000 portfolio and 10% held in a native token is not the same product as a flat rate. The token holding is a separate investment with its own price risk, and it should be priced separately rather than folded into the yield.

Floating rates. DeFi supply rates change with utilisation, and some exchange products quote a real-time APR that Binance itself states is subject to change every minute. A quoted number on a floating product is a snapshot, not a forecast.

A normalisation procedure

Five steps, in this order, applied to every rate before you compare anything.

One: establish your actual balance. Everything downstream depends on it, because tranches and tiers are balance-dependent.

Two: apply any promotional cap. If the top rate covers the first X, blend it with the rate above X across your balance. This is the step that changes rankings.

Three: deduct commission. If the quote is a gross staking reward, find the commission figure — usually in help documentation rather than on the product page — and subtract it.

Four: note tier conditions separately. Do not fold a required token holding into the rate. Record it as a separate position with its own risk.

Five: only now convert APR to APY, or vice versa, so both numbers are on the same footing.

Do this once for two or three candidate platforms and the decision usually becomes obvious. Our rate comparison table has run steps one through four for every platform we track, using a $5,000 stablecoin balance as the reference case.

One final point worth making. The reason this procedure is necessary at all is that crypto has no equivalent of the consumer-credit disclosure rules that force consistent rate quoting in traditional finance. In most developed markets, a lender advertising an APR must calculate it a prescribed way. No such requirement exists here, and platforms quote whatever presents best.

That is unlikely to change soon — the European Commission has named lending and staking as gaps beyond MiCA's scope, with a consultation that ran to 30 September 2026 — so the normalisation has to come from you.