Annual Percentage Yield (APY) is the rate of return an investor gains throughout a specific period that considers compound interest. Unlike regular interest, compound interest is calculated periodically and added directly to the investor’s balance, it can be monthly, weekly, or even daily.
As the balance continues to increase, the return will also increase. This differs from Annual Percentage Rates (APR), which have fixed rates of interest. As a result, even if the initial investment was the same, an investor can receive a greater return through APY than they would have received through APR.
Therefore, APY is more suitable for an investor because it can give higher total returns, while APR is more suitable for borrowers because the interest is more friendly.