Convert Interest Rate to APY in Crypto

APY is the actual rate of return you earn in one year by compounding your monthly interest. Read on to find out about fixed and variable APY and interest rates.

Josiah Makori
By Josiah Makori
Marcel Deer
Edited by Marcel Deer

Published June 26, 2022.

Annual Percentage Yield (APY) is the total amount of money or interest you earn on a bank or crypto account over one year. Importantly, APY includes compound interest.

An interest rate is similar to APY in crypto, only that it doesn’t consider compounding the monthly interest earned. Since simple interest is not compounded, you earn the same interest each month throughout the year. But in compound interest, the interest made every month is compounded throughout.

Can APY Be Fixed or Variable?

APY can be variable or fixed, depending on your deposit account. If you use a saving or money market account, your APY will be uneven, which means it will be tied to a primary benchmark rate.

When the benchmark rate increases or decreases, your APY will automatically comply. Basically, saving account rates adjust with the federal fund rate. When the Federal Reserve reduces interest rates, financial institutions also slash their APYs.

Certificates of Deposit (CDs) accounts have a fixed APY. Since a CD is a time deposit account, you hold funds in the account for a given period. You earn a fixed interest rate instead of a variable rate until the CD matures.

Once it matures, the new rate you will earn if you roll the CD over may increase or decrease, based on the benchmark rate. Nonetheless, this rule has some exceptions. For example, some financial institutions can increase your CD rates, permitting you to raise your rate and APY during your CD period.

How to Convert Interest Rate to APY

APR stands for the Annual Percentage Rate, and it refers to the interest rate lenders charge on the amount you borrow. In other words, it shows the yearly cost of borrowing money.

Here is the formula for converting interest rate to APR according to a crypto APY calculator:

Interest Rate = APR/n

APY = (1 + Interest Rate)n – 1

n is the number of period, which is 12 months.

APY is the Annual percentage Yield

APR is the Annual Percentage Rate.

Example

If Taylor borrowed 8% interest rate on his investment for one year, what will be his APY?

Answer:

APR is 8% or 0.08.

Number of periods (n) is 12 months.

Then, Interest Rate = APR/n

0.08/12

Interest Rate = 0.006666667

APY = (1 + Interest Rate)n – 1

(1 + 0.006666667)12 – 1

= 0.08299951

Therefore, our APY is 8.299%