Annual Percentage Rate (APR)
APR, or Annual Percentage Rate, expresses an annualised rate without incorporating the effect of compounding in the same way APY does.
✦ Key Insight
APR is frequently used for crypto loans, staking returns, lending, and borrowing costs. Understanding the difference between APR and APY helps users make more accurate comparisons. A 10% APR and 10% APY do not necessarily produce identical results when compounding occurs.
✕ Common Misconceptions
Confusing APR with APY
Treating variable APR as fixed
Ignoring borrowing fees
Assuming an annual rate predicts one-year returns
Ignoring token volatility
Comparing rates without examining methodology
Detailed Explanation
How It Works
APR expresses a simple annual rate.
For a simplified example, $1,000 earning 10% APR for one year would generate approximately $100 before fees and other adjustments if the rate remained constant and no compounding were considered.
Actual crypto products may calculate rates differently.
FAQs
Does APR include compounding?
Generally, APR itself does not express the effect of compounding.
Is APY always higher than APR?
When the same positive periodic rate is compounded, the effective APY will generally be higher.