APR, or annual percentage rate, is the simple yearly rate before compounding. APY, or annual percentage yield, includes compounding. Same underlying return, two expressions, and APY always looks larger.
Nothing about the gap is a trick, since both figures describe the same underlying return using two entirely standard conventions. Used as one, frequently, because two platforms offering an identical return can advertise very different figures purely by choosing which measure to display.
What compounding actually means
Compounding is what happens when returns start generating returns of their own, so each payment lands on a slightly larger balance than the one before it did.
Hold 1,000 units at 10% APR paid once a year. After twelve months you have 1,100. Simple enough. Nothing about that arrangement generates anything beyond the stated rate, because the balance sits untouched for twelve months before a single payment ever arrives.
Now pay that same 10% daily instead. Each day a small amount arrives, and the next day's payment calculates on the slightly larger balance. Those additions stack.
| Compounding frequency | 10% APR becomes |
|---|---|
| Once a year | 10.00% APY |
| Monthly | 10.47% APY |
| Daily | 10.52% APY |
The APR never changed. Only the payout schedule did.
The APR to APY formula in plain words
Take the APR, divide by how many times returns compound in a year, add one, raise to that same power, then subtract one.
Written out: APY = (1 + APR/n)^n - 1, where n is how many times per year returns compound.
Two things follow. Both matter.
More frequent compounding raises APY, with diminishing returns. From monthly to daily on a 10% APR adds less than a twentieth of a percentage point.
Higher base rates widen the gap. At 5% APR compounded daily, APY reaches 5.13%. At 20%, it reaches 22.13%.
APR vs APY side by side
| APR | APY | |
|---|---|---|
| Includes compounding | No | Yes |
| Typically used for | Borrowing costs, loan rates | Returns on deposits and staking |
| Which looks larger | Smaller | Larger, whenever compounding beats annual |
| Assumes | Nothing about reinvestment | Every payout reinvested at the same rate |
That last row is the one people miss. Projecting forward, APY assumes the rate holds for a full year and every payment gets reinvested. In crypto, where rates move constantly, that assumption frequently does not survive contact with reality.
Why crypto platforms advertise APY
Because it is the bigger number. Compounding in crypto is also often automatic, which makes the projection technically defensible.
Comparison is where the problem shows up. Showing 12% APY and showing 12% APR are not the same offer, and a reader scanning two pages has no obvious way to tell. Check which measure is displayed before comparing figures at all.
What APR and APY do not tell you
- Rates are variable. Quoted APY is a snapshot, and in DeFi it changes block by block as pool utilization shifts.
- The reward asset matters. Paid in a token that falls 40%, yield is not the return the headline suggested.
- Fees are excluded. Gas costs, deposit fees, and withdrawal fees all come off the top and rarely appear in the advertised rate.
- Risk is invisible. Neither number touches smart contract risk, counterparty risk, or losing the principal entirely. Highest advertised rates usually carry the highest chance of exactly that.
- Lock-ups are separate. A high rate with a 90-day lock is a different product from the same rate available on demand.
- Rates fall as capital arrives. Advertising 40% attracts deposits, and those deposits dilute the same reward stream. See yield farming for how far this goes.
Where the yield comes from: fees vs emissions
Here is the question that separates a sustainable rate from a temporary one.
Funded by real trading fees or borrowing interest, returns can persist, because real users pay them. Funded by newly printed tokens, they cannot, because emissions dilute holders and stop eventually.
An advertised 200% APY funded almost entirely by emissions is not a return. It is newly printed tokens whose price falls as more arrive. Before any rate comparison matters, checking the split between fee revenue and emissions tells you most of what you need.
Where mb.io fits
mb.io is a regulated crypto spot exchange, so the trading side is straightforward: you buy an asset and you own it.
mb.io is backed by MultiBank Group, a financial institution founded in 2005 that serves more than 2 million clients across 100+ countries.
- Regulated by VARA in the UAE and AUSTRAC in Australia
- 10/10 security score from Hacken, an independent blockchain security auditor
- Institutional-grade MPC custody powered by Fireblocks, with segregated client funds
- Buy, sell, and swap in three steps, from sign-up to purchase
- 24/7 multilingual customer support
Open your account and start trading on mb.io.
Frequently asked questions
Which is higher, APR or APY?
APY, whenever compounding happens more often than once a year. Under annual compounding they are equal, since compounding adds nothing at that frequency.
Is APY guaranteed?
No. Projecting forward from the current rate, APY assumes it holds for a year and every payout gets reinvested. Crypto rates move constantly, so today's figure is not next year's return.
How do I convert APR to APY?
Apply the formula (1 + APR/n)^n - 1, where n is the number of compounding periods per year. A 10% APR compounding daily gives (1 + 0.10/365)^365 - 1, or 10.52%.
Why do lending platforms quote APR but savings products quote APY?
Convention and marketing. Being the smaller number, APR suits a cost you are charged. Being larger, APY suits a return you are offered.
Why did my actual return not match the advertised APY?
Rates change, reward tokens can fall in value, fees come off the top, and rates dilute as more capital enters the pool. Advertised figures are snapshots rather than commitments.
What is a realistic APY in crypto?
No single answer exists, and the useful question is where the yield comes from. Funded by real trading fees or borrowing interest, returns can persist. Funded by token emissions, they stop when emissions do.
Does compounding frequency matter much?
Less than people assume. On a 10% APR, moving from monthly to daily adds under a twentieth of a percentage point. Base rate matters far more than schedule.
Does mb.io offer APY on deposits?
mb.io is a spot exchange. You buy, sell, and swap assets and hold what you own. This page explains APR and APY as terminology you will encounter elsewhere in the market.
