APY (Annual Percentage Yield): How does APY work in Crypto? - Phemex Academy (2023)

Author: Contributor Date: September 15, 2021

Key Questions Answered

APY (Annual Percentage Yield): How does APY work in Crypto? - Phemex Academy (1)

What Is APY?

In traditional finance, a savings account usually has both a simple interest rate and an Annual Percentage Yield (APY).

  • Annual Percentage Yield (APY) is the annual return from the principal and accumulated interest from investments or savings.
  • The simple interest rate is the amount of interest earned on the deposit. For example, suppose an account from a particular bank offers an annual interest rate of 5%. If a user deposits $1,000 USD into the account, they will have $1,050 USD in the account after a year.

Interest rate vs. APY

The interest rate does not consider the effects of compounding, but APY does. The APY refers to the projected rate of annual return gained on a deposit after accounting for compound interest. Compounding interest is the interest that a particular user earns from their principal (the original amount of investment made in an asset) and the interest earned from the initial deposit.

Real-life example of an APY

As an example, suppose the account mentioned above compounds the interest monthly. If the same user deposits $1,000 USD into this account, they will have $1,051.16 USD after a year. The difference between the two may seem insignificant, but over time the gains will be considerable. Unfortunately, most savings accounts in traditional finance offer very low APYs, with the highest at around 0.70% and the lowest around 0.06%. As a result, any interest income from savings account deposits are pretty minor compared to returns from stock market investments.

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APY (Annual Percentage Yield): How does APY work in Crypto? - Phemex Academy (2)

How does APY work in Crypto?

In the cryptocurrency world, APY works the same way. Users can earn compounding interest on their cryptocurrency by keeping them in savings accounts, staking the tokens, and yield farming by providing liquidity to liquidity pools. These interest-bearing activities are available through cryptocurrency exchanges, decentralized finance (DeFi) protocols, and wallet applications. Generally, users earn interest in the same cryptocurrency as what they deposited. However, there are cases in which users might earn interest in a different cryptocurrency.

What is a good APY for Crypto?

Typically, the APY earned by depositing crypto is much higher than that of the savings accounts in traditional finance. Most cryptocurrency projects offer an APY of over 1%. For example, users that deposit Tether (USDT) on Phemex will receive an estimated APY of 7% without even needing to lock in the funds for a fixed period. If users are willing to accommodate a 7-day lock period, the APY can rise to 10%. There are also projects offering very high APYs of over 100%, usually on DeFi platforms such as PancakeSwap (CAKE), Uniswap (UNI), and SushiSwap (SUSHI).

The APY rates across platforms are very competitive. If the transaction fees are low enough, yield farmers may switch between liquidity pools on different platforms to maximize earnings. However, users should be aware that some projects may be fundamentally unsound so everyone should choose their investments carefully.

APY vs. APR (Annual Percentage Rate): What are the differences?

Annual Percentage Yield (APY) and Annual Percentage Rate (APR) seem very similar as both involve interest. Some users even use these terms interchangeably. However, APY and APR are not the same.

As previously mentioned, APY is the annual return from the principal and accumulated interest from investments or savings. In contrast, APR is the annualized interest on a particular debt.

When a user possesses any type of loan, their lender will assign a specific APR to them. APRs can be fixed or variable depending on the type of loan and the user’s requirements. The APR tends to be higher than the loan’s nominal interest rate as it factors in the fees such as closing costs, insurance, and origination fees (the process fee for a new loan application). However, unlike APY, the APR does not consider compounding and is a simple interest rate.

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For APY, a higher percentage is better as users earn more from their deposits and investments. However, a high APR on a debt means that users will need to pay more interest. The APR that users have to pay is typically associated with the users’ credit scores. If a user has a good credit score, then they qualify for a lower APR. If a user has a bad credit score, then they are assigned a high APR. On the other hand, APY is unrelated to a user’s credit score.

Since crypto lending and borrowing do not involve credit scores, the APR is associated with market fluctuations instead. Like APY, the APR increases when demand is high and decreases when the market is stable.

How Is APY Calculated?

The APY can be determined with a specific formula. This formula is typically used in traditional finance, where the nominal interest is mostly the same across a long period of time. It involves the values of the nominal interest rate and the number of compounding periods. The definitions of the two are as follows:

  • The nominal interest rate is the interest rate before taking inflation into account.
  • The compounding period refers to the time frame between when the interest was last compounded and when it will be compounded again. For example, monthly compounding means that the interest will be compounded every month. It can be monthly, daily, annually, or any other time frame.

APY Formula

The formula for the calculation of the APY is as follows:

APY (Annual Percentage Yield): How does APY work in Crypto? - Phemex Academy (5)

Why Is the APY So High in Cryptocurrency?

APYs in the cryptocurrency world constantly change. As a result, the APY shown on cryptocurrency exchanges, liquidity pools, and staking pools are often just estimates. The volatility arises from the change in supply and demand of particular crypto assets. If the demand for a specific crypto asset is high, the interest rate and the APY will typically increase as well.

The projects’ specified blockchain protocol also plays a part in the calculation of the APY, because the compounding period may be different for each project. For example, some projects compound interest according to the mined block per block cycle, while others work with different time frames. The more the number of compounding periods, the higher the APY will be. However, the difference is relatively minor.

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For example, suppose a user deposits $100,000 USD into an account with an interest rate of 5% and compounds interest monthly. They would have about $105,116 USD after a year, giving an APY of 5.116%. If the account compounds interest daily, the user would have around $105,126 USD after a year, providing an APY of 5.126%. The difference between the monthly and daily APYs is approximately 0.01%.

As mentioned previously, the APY for a particular crypto project depends on the supply and demand of the crypto project’s assets. A high demand translates to a high APY. Most of the very high APY offerings come from yield farming or liquidity mining. Users provide liquidity into liquidity pools and lend their tokens to others to earn yield and rewards.

Crypto Lending

If users are earning more than 1% from lending, it means that other users are willing to pay more than 1% interest to borrow that crypto asset. Generally, crypto lending allows users to earn profit by using them for interest rate arbitrage, short-selling, and other uses:

  • Interest rate arbitrage involves borrowing crypto assets from low-interest pools to lend to higher-interest pools and earn the difference as profit.
  • Short-selling refers to borrowing a specified value of a crypto asset and selling the borrowed funds in anticipation of a price drop. Once the price does fall, the user can buy back the same amount of crypto-asset at a cheaper price and pocket the difference.

Projects with incredibly high APYs of over 100% are often trying to counter impermanent loss, which occurs when the ratio of tokens in a particular pool is unbalanced. High APYs are common for new projects launching on decentralized exchanges (DEX). This is because in the early days of a coin’s lifetime, the price is very volatile, and there is a high possibility of a dump. By offering massive APYs, these projects try to offset the impermanent loss and entice users to continue providing liquidity instead of selling. After some time, it is common to see the APY drop as the number of liquidity providers grows and the project stabilizes.


The Annual Percentage Yield (APY) is the rate of return on an investment after considering the principal and compounded interest. A high APY means that users gain more with their deposit. Hence, users looking to deposit their crypto should consider the APY when they compare platforms. However, users should take note that the APY fluctuates.
Most crypto savings options and liquidity pools offer APYs of over 1%. Some newer projects even provide APYs for over 100% to combat impermanent loss and price volatility. As a result, users can leverage such pools to earn a nice profit. However, users should do their own research before depositing in case of potential scams and rug pulls.

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How does earning APY on crypto work? ›

APY stands for annual percentage yield and it works the same way in crypto as in traditional finance. APY refers to the return on an investment taking into account compound interest, as opposed to a simple interest rate which only represents the interest earned on the original stake.

How does APY yield work? ›

APY standardizes the rate of return. It does this by stating the real percentage of growth that will be earned in compound interest assuming that the money is deposited for one year. The formula for calculating APY is: (1+r/n)n - 1, where r = period rate and n = number of compounding periods.

What does 10% APY mean in crypto? ›

APY stands for annual percentage yield, and it means your compounded return per year, as a percentage figure. It's more common than APR in crypto (annual percentage rate) and factors in compound interest – you also earn interest on your interest payments over time.

How much interest does Phemex give on crypto? ›

Earn Crypto | Crypto Interest Up to 88.80% | Phemex. Claim your Welcome Bonus, up to $6050!

How does a 7 day APY work in crypto? ›

The seven-day APY is an annualized yield using seven-day returns. It's calculated by taking the net difference in price from seven days ago and today and generating an annual percentage. The formula to calculate seven-day APY is as follows: APY = (end − beginning − weekly_fees) ÷ beginning × 365/7.

Do you get money from APY? ›

Annual percentage yield, or APY, is a percentage that reflects the amount of money, or interest, you earn on money in a bank account over one year. APY includes compound interest. You can use a compound interest calculator to quickly see what you'll earn with a given APY.

What is 1.00% APY on 10000? ›

In a high-rate savings account at 1.00% APY, that $10,000 will become about $10,100.00 after compounding monthly for a year. The effect of compound interest on your deposit accounts can be huge beyond 12 months. When choosing your financial products, open an account that will earn more money on your money.

How often is APY paid out? ›

Some accounts will compound interest annually. This means interest is calculated and paid out once a year. Others will compound interest quarterly, meaning interest is calculated and paid out once every three months.

Is APY paid out monthly? ›

APY is paid in set periods. For example, some APYs are paid daily, while others are paid monthly or annually.

What is 100% APY in crypto? ›

This is when you lend out a cryptocurrency and earn interest on it. The appeal of yield farming is that some projects offer extremely high interest rates. I've seen several with an annual percentage yield (APY) of over 100%. APY is the yearly interest earned on your deposit.

Is crypto APY daily or monthly? ›

APY in Crypto is the annual percentage yield on a cryptocurrency investment. It is a measure of the return on investment, and it is calculated by taking the daily interest rate and multiplying it by the number of days in a year.

What is the highest APY crypto? ›

The highest crypto savings APYs are paid on stablecoins USDC and USDT – up to 12.30%. CoinLoan, Nexo, Crypto.com, Ledn, and StormGain pay the highest APYs between 10% and 12.30% on stablecoins USDT and USDC when considering the APYs paid on top 10 cryptos by market cap.

Is Phemex allowed in the US? ›

Phemex provides ways to earn interest, and it offers free real-time trades for premium members. While U.S. residents can use Phemex, it's best to confirm if your state allows the exchange, which is a factor that weighs on our rating. Check out our full Phemex review to see if this exchange is right for you.

How do I get my money out of Phemex? ›

How To Withdraw On the Phemex App
  1. Log into your Phemex account, then tap the corner right icon at the bottom, which is your Wallet icon.
  2. Next, get the deposit address you would like to deposit towards. ...
  3. Once you have tapped Withdraw, several options for coins will appear. ...
  4. Next, select a network.

How to make money on Phemex? ›

Just invite your friends to join Phemex and earn for every successful sign up. Subscribe to our Saving Products USDC and USDT for just 14 days and stand a chance to win up to $5,000 USDT in vouchers!

Why are crypto APY so high? ›

Demand for stablecoins constantly exceeds supply. So people with stablecoins to lend can charge premium interest rates, and crypto platforms desperate for stablecoins offer high interest rates to attract new stablecoin lenders. That's why stablecoin interest rates are so high. It's simple economics.

What does 15 APY mean in crypto? ›

Annual percentage yield (APY) acts as a cryptocurrency savings account similar to an annual percentage rate (APR) account. You may deposit your bitcoin (or another crypto asset) and receive a fixed rate of return over a specific period of time.

How do you calculate APY staking crypto? ›

What Is Annualized Percentage Yield (APY) in Crypto?
  1. APY means Annualized Percentage Yield. ...
  2. APY = (X − Y − Z) ÷ Y × 365/7.
  3. How to Calculate APY in Crypto.
  4. APY = (1 + r/n)ⁿ − 1.
  5. Daily yield = The number of total tokens staked × (APY for the staked token ÷ 365)
  6. APR = [(Fees + Interest) ÷ Principal] ÷ n × 365 × 100.
Nov 22, 2021

How do I get my money back from APY? ›

Fill in the Atal Pension Yojana cancellation form with relevant information. Submit the duly signed form to the bank. Then, wait for the verification of your application. Upon completing the process, your amount and interest will then be credited to your linked bank account.

Is it good to invest in APY? ›

Tax benefits:

To give an impetus to people to invest in the Atal Pension Yojana, the Government is giving tax benefits on contributions made to the scheme. The Atal Pension Yojana tax benefits can be availed under Section 80CCD (1B), to the tune of Rs. 50,000 over and above the Rs. 1.5 lakhs.

Is it worth investing in APY? ›

APY can be a supplement to other means of regular income that you may have post-retirement. It is a good idea for both husband and wife to enrol in the APY and get pension of as much as Rs 10,000.” But APY should not be your only option to get a good pension scheme.

How much interest will I earn on $1000 dollars? ›

How much interest can you earn on $1,000? If you're able to put away a bigger chunk of money, you'll earn more interest. Save $1,000 for a year at 0.01% APY, and you'll end up with $1,000.10. If you put the same $1,000 in a high-yield savings account, you could earn about $5 after a year.

Is 3% a good APY? ›

Is 3% a high rate? In a word, yes. The national average savings rate as of October 2022 is 0.21% APY, according to the Federal Deposit Insurance Corp. That's a good deal higher than in the past — it was a paltry 0.06% in January 2022.

What is 5.00% APY mean? ›

What does 5.00% APY mean? A 5% APY means your money earns 5% interest per year. If you deposited $100 in an account that compounds annually, you'd have $105 at the end of a year. But accounts may compound monthly, weekly, daily or even continuously.

What is a good APY rate? ›

A high-yield savings account is a type of federally insured savings product that earns rates that are much better than the national average. They can earn around around 3% APY. By comparison, the national savings average is 0.33% APY.

What does 3% APY mean? ›

APY indicates the total amount of interest you earn on a deposit account over one year, assuming you do not add or withdraw funds for the entire year. The annual percentage yield is expressed as an annualized rate.

What is an example of APY? ›

In our earlier example, the APY on an account earning 2%, compounding monthly, was 2.02%. If you deposited $10,000 into this account today—and interest rates remained constant—a year from now you would have $10,202, $2 more than the $10,200 you would have at a simple interest rate of 2.00%.

How is APY calculated daily? ›

You would first divide your interest earned of $30.00 by the principal of $1,000 — resulting in 0.030 — and add 1. This results in 1.030. Next, you would divide 365 by the number of days in the term, in this case, 365, producing 1. We then multiply 1.030 by 1, resulting in 1.030.

Which bank gives 7% interest on savings account? ›

Do Banks Offer 7% Interest On Savings Accounts? 7% interest isn't something banks offer in the US, but one credit union, Landmark CU, pays 7.50% interest, though there are major requirements and stipulations.

What does 0.25 APY mean? ›

For example, if you put $1,000 in a savings account with an APY of 0.25%, you'll earn $2.50 in standard interest. You will also receive interest on that additional $2.50 that you earned at the same rate, which is an extra $2.52.

Is crypto APY taxable? ›

If you receive cryptocurrency as payment for goods or services. Many businesses now accept Bitcoin and other cryptocurrency as payment. If someone pays you cryptocurrency in exchange for goods or services, the payment counts as taxable income, just as if they'd paid you via cash, check, credit card, or digital wallet.

What is the safest crypto interest account? ›

The Top Crypto Savings Accounts For 2022
  • Nexo. Our Score: 9. Supported Cryptos: 40. ...
  • YouHodler. Our Score: 9. Supported Cryptos: 50+ ...
  • Crypto.com. Our Score: 8.5. Supported Cryptos: 200+ ...
  • Uphold. Our Score: 8.5. Supported Cryptos: 200+ ...
  • BlockFi. Our Score: 8.5. ...
  • Gemini. Our Score: 8.5. ...
  • Coinbase. Our Score: 8. ...
  • KuCoin. Our Score: 8.
Jan 5, 2023

Can you get a 5% APY? ›

Which account offers a 5% interest rate? Both Netspend and Blue Federal Credit Union offer an APY of 5%.

Who offers the highest APY? ›

The top rate you can currently earn from a nationally available savings account is 5.03% annual percentage yield (APY), offered by Primis Bank.

Does Phemex report to IRS? ›

Does Phemex report to the IRS? Phemex is not licensed to operate in the US, so it's unlikely they report to the IRS. However, that could all change quickly if the IRS or the SEC take an interest. It is advisable that all your taxable transactions are reported correctly.

Which country owns Phemex? ›

Founded in 2019 in Singapore, Phemex has been operating as a crypto derivatives exchange.

What is the minimum withdrawal from Phemex? ›

For BTC, the minimum withdrawal limit is 0.001 BTC and the withdrawal fee is 0.00057BTC.

How do I get my money off crypto? ›

At a Glance: To withdraw money from Crypto.com, open the app, link a bank account (if you haven't already), hit the Withdraw button towards the bottom of the screen, choose Fiat and select your preferred currency, enter how much you want to take out, and hit the Withdraw button.

What is the cheapest way to convert crypto to cash? ›

4 Easy Ways to Convert Bitcoin to Cash
  1. Use a crypto debit card like the BitPay Card.
  2. Sell crypto for cash on a central exchange like Coinbase or Kraken.
  3. Use a P2P exchange.
  4. Seek out a Bitcoin ATM.
May 30, 2022

Why are my funds frozen on Phemex? ›

Through the double-entry bookkeeping mechanism, Phemex can immediately detect if the user's account has been tampered with. If so, the system will immediately freeze the tampered account and stops all of its pending actions and operations.

How much does Phemex charge per trade? ›

Phemex employs a 0.01% maker fee and a 0.06% taker fee for contracts. Our spot trading fees are 0.1% for both maker and taker.

Is Phemex a safe exchange? ›

Phemex: A Safe and Trustworthy Crypto Platform

Phemex has proven to be a legitimate, safe, and highly trustworthy crypto exchange. Being a major centralized exchange, it has never been hacked during its entirety of operation.

How do I transfer dollars to Phemex? ›

Open the Phemex App and log in to your account. Tap the Assets Icon on right side of the bottom navigation bar and then tap the Transfer button at the top of the page. Tap Flip Icon to make sure you are transferring From Spot Wallet To Contract trade accounts. Select whether you're transferring BTC or USD.

How does APY work with crypto staking? ›

Now, what about APY in cryptocurrency? You can think of it as a savings account where you deposit Bitcoin, or any other coins or tokens, and get a fixed return after some predetermined time. For instance, if you invest 10,000 USDC at 10% APY, you will earn 11,000 USDC in a year.

How does earning APY on Coinbase work? ›

What is Annual Percentage Yield and how is it calculated? Annual Percentage Yield (APY) refers to a percentage rate reflecting the total amount of staking rewards projected to be earned over an annual period based on the then-current Rewards Rate compounding at set intervals for a 365-day period.

How is APY calculated in staking crypto? ›

What Is Annualized Percentage Yield (APY) in Crypto?
  1. APY means Annualized Percentage Yield. ...
  2. APY = (X − Y − Z) ÷ Y × 365/7.
  3. How to Calculate APY in Crypto.
  4. APY = (1 + r/n)ⁿ − 1.
  5. Daily yield = The number of total tokens staked × (APY for the staked token ÷ 365)
  6. APR = [(Fees + Interest) ÷ Principal] ÷ n × 365 × 100.
Nov 22, 2021

What is a good APY for crypto? ›

Crypto Interest Rates
Crypto Interest AccountAPY on 0.1 BTCAPY on 1,000 USDC
CoinLoan4.2% - 5%6.2% - 8.2%
Haru Invest6%4.5%
2 more rows

What is the highest APY crypto staking? ›

The Best Crypto Staking Platforms with the Highest Rewards
  • Lucky Block - Overall Best Crypto Staking Platform Alternative.
  • OKX - World-Class Crypto Staking Platform Offering up to 300% APY.
  • eToro - Top-tier Crypto Exchange with High-interest Staking.
  • Crypto.com - Earn up to 14.5% APY in Passive Interest.
Jan 31, 2023

What does 100 APY mean crypto? ›

This is when you lend out a cryptocurrency and earn interest on it. The appeal of yield farming is that some projects offer extremely high interest rates. I've seen several with an annual percentage yield (APY) of over 100%. APY is the yearly interest earned on your deposit.

Which coin has the highest staking APY? ›

The cryptocurrencies with the highest staking market cap include ETH, SOL and ADA, in which the typical annual yield is around 4% to 5%. Note rewards on the Ethereum network are typically locked up until the Ethereum 2.0 network is complete. Also of note, more than 10% of Ethereum is staked.

How does APY work per month? ›

But remember: APY shows you the yearly interest you earn. So if you have a high-yield savings account with a 0.5% APY, you'd calculate monthly interest by dividing 0.5% by 12 to get 0.0416% per month. How does APY work? APY is the amount of money you can earn in interest when you deposit your money in a bank.


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