An annual percentage yield (APY) account is a savings account that functions in the same way for cryptocurrency as an annual percentage rate (APR) account does for fiat currency bank accounts.
An annual percentage yield (APY) account works similarly to a fiat APR savings account, in that it allows you to deposit your cryptocurrency into a savings account to generate income at a set interest rate. APY itself refers to the rate of return gained over the annual investment period for a specific cryptocurrency investment. It is used to calculate how much potential income you can make from investing a particular asset, factoring in compound interest as well. Compound interest refers to not only the amount that the investor earns from the initial interest, but also the interest that they earn on the interest.
Some of the larger cryptocurrency exchange platforms offer such plans, as do certain wallets, blockchains and DeFi protocols. Cryptocurrency exchange platforms, such as Binance, Cake DeFi and Phemex offer savings plans, as well as staking plans. There are also blockchains that offer staking options. However, both the savings plans and staking options usually have different period options for locking the crypto, so if you were to opt for a 30-day or 90-day plan, it would make the APY calculations more complex. This is because you would need to apply those principles on a 30-day or 90-day basis, such as by a calculation of APY = (end – beginning – 30-day_fees) / beginning x 365/7.) But the benefit of such an approach is that it allows you to remove your profits from the platform to store else. This is an increasingly important consideration given the number of hacks and bankruptcies that have occurred recently.