With low traditional savings rates, it’s no surprise that crypto savings accounts, staking, yield farming, and crypto lending are gaining traction.
After all, who wouldn’t like to make money on the side?
In this blog, we’ll go over the definition of APY, how it’s calculated, and where to find the safest and best crypto APY rates so you can profit more from investing in top crypto with less dependency on the market volatility.
Let us take a look at what APY is in crypto
The annualized rate of return on an investment (APY) takes into account compound interest that accrues or grows with the balance. Compound interest includes both the interest earned on the initial deposit and the interest earned on the interest.
Although commonly associated with traditional savings, APY is an important metric for crypto savings programs and functions similarly. Crypto investors can earn APY on their cryptocurrencies by staking them in cryptocurrency savings accounts.
If you are a crypto investor looking to make a return on your investment while holding it, cryptocurrency savings accounts with APY may be just what you need.
Simple Interest Rate vs. Annualized Percentage Yield (APY)
A simple interest rate only considers the interest earned on the original stake, whereas an APY refers to the projected rate of annual return gained on a deposit or stake after accounting for compound interest. Thus, the main distinction is that APY considers the effects of compounding interest if it applies.
Compounding is an effective investment strategy because it allows you to earn additional income over time. Compound interest is calculated over a set period, and the added value is applied to the balance. The interest paid on the total balance rises with each additional period.
It can be demonstrated using simple math
If you start with Rs. 100 and earn 5% interest per year, you’ll end up with Rs. 105 at the end of the first year, and Rs. 110.25 at the end of the second year. In contrast to Simple Interest, where you would have received Rs. 100. Not only did you earn Rs. 5 on the initial Rs. 100 deposit, but you also earned Rs. 0.25 on the Rs. 5 in interest.
While 25 cents may not seem like much at first, it quickly adds up to create good returns on a longer horizon.
How Does 7-Day APY Work in Crypto?
The 7-day annualized yield is a measure of the annual rate paid to interest-bearing account investors. This sum is calculated using the returns earned over seven days. This financial term is also referred to as the 7-day annualized return.
To compute the seven-day yield, find the difference between the current price and the price seven days ago. Then multiply the result by the annualization factor.
The formula for calculating 7-day APY is as follows:
7-Day Annualized Yield = ((A-B-C)/B) x 365/7
A: Price at the end of the 7 days
B: Price at the start of the 7 days
C: The fees for the week
How to Calculate APY in Cryptocurrency?
The simplest way to calculate your yield based on APY is to multiply the value by the principal.
Here’s a simple formula to calculate how much interest you’re earning every 30 days on a 5% APY 30-day plan with a $1,000 USDT initial deposit.
Interest = (Principal X APY / 365) X Period.
Interest = (1,000 X 0.05/365) X 30
Interest = 4.10 USDT
It will add up to your initial crypto investment and will be an updated principal to gain interest on.
If you withdraw your funds, you will lose the benefit of interest compounding on your balance. If you do not withdraw your funds for a year, your interest will be added to your balance, and the interest paid on your updated will increase over the year.
What Is the Annual Percentage Rate (APR)?
The annual percentage rate (APR) is an estimate of the rewards you will receive in cryptocurrency over the specified timeframe. It does not show the current or expected APR in any fiat currency. The APR is adjusted daily, and the estimated rewards may differ from the actual rewards generated.
The terms APY and APR sound very similar. APR, unlike APY, does not take compounding into account.
APR is frequently used in traditional finance to discuss terms for borrowers, such as the credit card interest rate that borrowers must pay. This interest rate percentage can also refer to the percentage paid to investors.
Because of the effects of compounding, the APY for a loan is generally higher than the corresponding APR.
APR = [(Fees + Interest)/Principal] x (Number of Years) x 100
What are the Factors That Influence Crypto APY?
In general, inflation refers to the loss in the value of a currency over time. In the crypto world, inflation is the process of adding new crypto coins to a specific blockchain. Most blockchains do this at regular intervals.
It’s important to remember that the inflation rate for a specific cryptocurrency has a significant impact on the APY of investments. If the inflation rate in your crypto is higher than the projected APY, it is best to avoid that investment.
Supply and Demand:
The law of supply and demand, as in any market economy, influences pricing. A cryptocurrency owner can effectively lend their cryptocurrency to generate interest income. Because interest is earned based on the demand for that cryptocurrency, market dynamics can influence the rates.
The interest rate for borrowing money gets lower when there is plenty of supply and higher when there is scarcity. Similarly, crypto APY varies according to the level of demand and liquidity for each coin.
Naturally, the amount of compound applied to the interest affects the calculation of the Annual Percentage Yield, which can vary depending on the number of compounding periods. When the number of compounding periods increases, the APY does as well.
What are the best platforms for earning APY on Crypto?
Carret is a cryptocurrency investment platform that also provides investors with an annual percentage yield (APY) on their crypto holdings.
The platform’s interest-generating product, 24Carret, offers investors a return of up to 17% on USD Coin (USDC) and Tether (USDT) stablecoins, up to 9% on Ethereum (ETH), and up to 8% on Bitcoin (BTC) without any lock-in period.
To maximize the benefits for customers, the capital is compounded daily. Because all interest is paid monthly, the power of compounding can be easily leveraged. 24Carret strives to give users a good return over time.
You can start your crypto investment journey with Carret by downloading our app.