Annual Percentage Yield (APY) and Annual Percentage Rate (APR) are the two ways to calculate Interest. APR reflects the simple interest rate over a year’s time, while APY describes the rate with the effect of monthly compounding or the interest on interest. You can check the APY rates for all the available tokens by clicking on this link: http://support.vauld.com/en/articles/5213325-our-interest-rates
APY means Annual Percentage Yield which is the real rate of return you receive, taking into account the effect of compounding interest on your fixed deposit. In simple terms, it is the total interest you can make in a year if you renew a monthly FD for 12 months (including the compounding of your principal amount).
Interest from an FD is added to your balance monthly, in case of a Savings deposit, it is added to your balance weekly. Going forward, this interest and your principal are combined to become the principal of the next month or next week. With each month or week, the new principal gets bigger, in turn increasing the interest paid on the balance after each period.
So to make the maximum yield on your funds in one year, you can:
- Lock all your funds in 1-month Fixed Deposits
- Check the option to auto-renew the FD along with interest and principal
At the end of the year, you would have made the listed APY rates.
Let's see how this works with an example.
Disclaimer: The example below is for illustrative purposes only and does not reflect the current interest rates.
Say you have an account with a deposit of 1 BTC. The asset is placed in an FD with an interest rate of 7%. On maturation after a month, the FD will payout with an interest of
Thus, the total payout at the end of the first month will be 1.00575343 BTC
If you choose to keep your FD in an auto-renew with both the principal and interest getting renewed then the next month's interest shall be
With the total payout at the end of the second-month being
This way each subsequent month proceeds and results in a yearly interest of 7.23% which is the APY. If you chose to not renew the interest into the FD then you'd eventually get an interest of 7% which is the APR.