What is an APY Saving Account and Compounding Interest in Crypto?

Can we get profit through crypto account saving? Yes, we can generate profit through crypto savings. Crypto savings accounts with APY generate annual profit. But what is APY in crypto? And how does it work? Let's dive into depth for knowing about APY in crypto.

What is APY in Crypto?

APY is the annual percentage yield. APY is a crypto saving account that generates profit on saved crypto. This was the general definition. Let me provide you with a common explanation about APY. We save our crypto coins like Bitcoin on exchange. The purpose is to save coins for future use. How would it be if you get profit on your savings? Amazing, right. APY saving accounts perform such a job. In the case of APY, after a specific period, interest is generated on saved coins which are turned into profit. APY provides a method of tracking profit generation on crypto-saved accounts.  

The interest we get on saved coins through APY is compounding interest. Head towards the next heading to know what is Compounding interest.

Compounding Interest

Compounding interest is the profit users get on the principal amount(general amount saved in account) and interest which is collected. In simple language, compounding interest is interest on interest. It's like double profit.

Due to compounding interest, we find APY a profitable technique. Compounding interest differs from simple interest. Simple interest is all about profit generated on saved amounts only.

What is a 7-Day APY?

7-Day APY makes you aware of the interest or profit earned in the last week. The difference between last week's price and the present gives a net 7-Day APY. If you want to remain updated about weekly progress then 7-Day APY will help.

Formula

APY = (X − Y − Z) ÷ Y × 365/7

X= price at the end of the week

Y= price at the start of the week

Z= fees of work

Dependant Factors of APY

APY depends on two factors:

• Periodic rate
• Time

Periodic rate

The number of earnings will depend upon the periodic rate. The greater the periodic rate, the greater will be the profit.

Time

A specific period after which you are getting the profit will affect the amount. APY increases with the period. There is a direct relation between qualities.

What Annual Percentage Rate?

After seeing what APY is in crypto, let's check APR. We know the annual percentage rate as APR. APR represents the annual rate of interest we get on saving. It is represented in percentage. It includes everything, even the borrowing fees which we get. We can get a better figure through APR as it’s an annual rate report.

Formula

APR = [(Fees + Interest) ÷ Principal] ÷ N × 365 × 100

P = principal investment

N = number of days in the term

APR vs APY

People think APR and APY are the same thing. But it’s not true. There is a minor but solid difference between the two qualities. Compounding interest differentiates the two. APY uses a compounding interest methodology for defining output. Whereas APR doesn't use such figures.

Conclusion

If you also want to get passive income then an APY account is a good opportunity for you. Many exchange platforms like coin base offer such a facility. Use your trusted exchange and make an APY saving account. A good method of getting profit over profit.