What is APY?
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Last Update hace 2 años
APY is an abbreviation for Annual Percentage Yield. The annual percentage yield (APY) is the real rate of return earned on an investment, taking into account the effect of compounding interest. Unlike simple interest, compounding interest is calculated periodically and the amount is immediately added to the balance. With each period going forward, the account balance gets a little bigger, so the interest paid on the balance gets bigger as well.
On the Xend Finance App, the compound interest is calculated and paid on a daily basis. For example, if the APY rate is 10% and the amount deposited is $10,000 let's calculate the earnings below:
The formula to calculate the actual yield is given:
Where:
I = Interest Earned
P = Amount Deposited
R = APY Rate
D = Number of days to save
But what does this mean in simple terms; using the parameters given above:
Day 1 interest = (10,000 * 0.1)/365 = $2.7397
This means that on the first day, the user will get $2.74 paid into his / her wallet for a deposit of $10,000. This amount will be added to calculate Day 2 interest.
Day 2 interest = (10,002.7397 * 0.1)/365 = $2.7405
This interest will be added to the overall to calculate Day 3 interest.
Day 3 interest = (10,005.48 * 0.1)/365 = $2.7412
You get the point now. At the end of the savings period, let say 365 days, the interest will be:
Day 365 interest = 10,000 * (1 + 0.1/365)365 - 1 = $1051.5578
So by compounding the interests for 365 days we get $1051.55 instead of $1000 at a flat rate. The benefits of compounding interests are seen over the long term.
For Example, see the table below to see how $10,000 will compound over 20 years compared to a fixed rate:
The benefits of compound interest can be seen clearly over the long term, which is why compound interest is often regarded as the Eighth (8th) wonder of the world.