When you’re looking to invest in cryptocurrencies, it’s important to understand the difference between APR and APY. In this crypto tax calculator article, we will explain the difference between the two. So keep on reading to find out more!
APR, or annual percentage rate, is a number that shows how much will be owed when borrowing money or how much an investor will get paid. In regular terms, this can simply be understood as the interest charged or earned on a yearly basis.
However, it’s important to keep in mind that credit cards typically don’t follow this same rule. When using a credit card and paying off the balance each month by the due date, there is usually no APR charged. But if you have an outstanding balance and the due date passes, then your creditor company has authority to add interest at the end of every billing period until you’ve completely paid off what was originally borrowed.
The APR is the annual percentage rate that investors may anticipate to earn interest on their investment, lending their cryptocurrency or making it available for loans. It accounts for other costs that a borrower must pay, but not compounded interest.
The APY or, Annual Percentage Yield, is a way to calculate how much money may be gained each year from an interest-bearing account. The APY in cryptocurrency refers to the rate of return produced by an investment. Unlike the APR, which only considers normal interest, the APY incorporates compound interest. Compound interest is calculated using both the interest and principal sum invested. As a result, the APY is more profitable than the APR.
Staking your coins and employing yield farming to create liquidity for liquidity pools can both result in an APY. They may also earn an APY by keeping their funds in savings accounts. Investors can use crypto exchanges, wallets or DeFi protocols to earn an annual percentage yield (APY) on their Bitcoin. Interest is commonly paid in the same cryptocurrency that was invested; however, there are situations where a different currency is paid out.
The APY and the APR are used to calculate interest on crypto assets and loans. However, there is a distinction between the two.
The annual percentage yield (APY) is the yearly rate of interest that an investor earns on a securities investment, while the annual percentage rate (APR) is the total amount of money paid as interest over one year. When comparing these two returns, it’s key to remember that compound interest is included in APR but not APY– meaning that with APY, you’re only looking at pure profit earned.
The APY, annual percentage yield, is the total return on your investment, including any interest and capital gains. The APR, or annual percentage rate, does not take compound interest into account; as a result, the APY will always be higher.
If you’re a cryptocurrency investor, there are several options available to you where you can invest your money. You can fund liquidity pools on exchanges, keep crypto in savings accounts, stake your coins or invest in yield farms.
The difference between the APY and the APR is crucial to understanding where money is best invested for individuals looking to make a profit. Generally speaking, APRs are more beneficial for borrowers.
Since more DeFi tools and cryptocurrencies use APRs, investors have to reinvest their gains manually on a daily or weekly basis in order to get greater compound interest.
Crypto Tax Calculator Australia has been created to make tax time easier for Australians who have made crypto currency transactions in the past financial year. The application is simple to use, just upload your CSV file and within minutes you are presented with your tax report. This tax report can then be used as evidence of your crypto currency transactions when lodging your tax return. If you have any questions about how to use Crypto Tax Calculator, our team is here to assist you.