APR vs APY: What a Yield Quote Actually Pays

The short answer, before the arithmetic

APR is a yearly rate stated without compounding: 5% APR means 5% a year if you never add the earnings back. APY is a yearly rate that already includes the effect of adding them back: it is what the account actually pays over a year given a stated compounding frequency.

Neither is more honest than the other. They answer different questions, and they come from different regulations. In crypto the practical difference is that a platform’s advertised number is usually an APR, the number it actually pays depends on whether rewards are reinvested, and the rate itself may be repriced far more often than a bank’s.

Two definitions, from two regulations

It is worth reading the regulated text once, because both terms have precise legal meanings that are narrower than their marketing use.

APY is defined in the Truth in Savings rules at 12 CFR 1030.2:

“(c) Annual percentage yield means a percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period and calculated according to the rules in appendix A of this part.”

Three things are packed into that sentence: it is a total for the period, it includes the frequency of compounding, and it is fixed to a 365-day year. The compounding is inside the definition, which is what makes an APY comparable across accounts with different payment schedules.

APR comes from the Truth in Lending rules at 12 CFR 1026.22, and its definition is about credit rather than deposits:

“The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made. The annual percentage rate shall be determined in accordance with either the actuarial method or the United States Rule method.”

That is a discount rate that equates cash flows, not a simple multiplication. It already accounts for timing and for fees folded into the finance charge. This is why quoting a credit APR and a deposit APY side by side as if they were a spread is meaningless: one is the price of borrowing and the other is the price of lending, both annualised, on different bases.

The same section also carries a precision rule worth quoting, because it shows how much the regulator cares about the number’s accuracy: an APR “shall be considered accurate if it is not more than 1/8 of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1)”. One eighth of a percentage point. Hold that against an exchange rate that the exchange itself says can change every minute.

The one formula that matters

For a nominal rate r compounded n times a year, the effective annual rate is:

APY = (1 + r / n)^n − 1

Run it at 5%:

Two things fall out. First, the gap between annual and daily compounding at 5% is about 0.13 percentage points — real, but not the difference between a good and a bad product. Second, daily and per-minute compounding are the same number to three decimals; the continuous limit is e^r − 1, and 365 compounding periods already get you there. A platform that advertises per-minute accrual is giving you the arithmetic of daily compounding dressed in a smaller unit.

The gap grows with the rate. At 20%, annual versus daily compounding is 20.00% against 22.13% — more than two percentage points, and enough that comparing an APR against an APY at the same headline number becomes actively misleading.

What Binance actually quotes, and how it accrues

Binance’s Simple Earn Flexible page is unambiguous about which of the two terms it uses, and about how often the number can move.

Rewards are described through two components. Real-Time APR “provides a live indication of the rewards you can earn and is subject to change every minute,” applies “to the total amount you deposit in each Flexible Product,” and its rewards “are accrued and directly accumulated in your Earn Account every minute,” rounded to eight decimal places. Bonus Tiered APR is a promotional layer that “offers different levels of APR levels based on the amount of assets deposited,” can “change daily,” and is computed from “the snapshot of your Flexible Product on the previous day,” taken at a random time between 00:00:00 and 23:59:59 UTC.

Two sentences on the page do the most work for a reader:

“APR is an estimate of rewards you will earn in cryptocurrency over the selected timeframe.”

“APR is adjusted daily and the estimated rewards may differ from the actual rewards generated.”

That is the whole caveat, stated by the venue rather than by a critic. A quoted APR is a forward statement about a rate the venue controls, not a term of a contract.

The page also publishes the accrual formula as a worked example: 2,000 ABC tokens at a 2.09% rate, divided by 365 days, 24 hours and 60 minutes, equals 0.00007952 ABC per minute. Notice what the formula is and is not. It is the nominal rate divided by the number of minutes in a year — simple interest at minute resolution. There is no (1 + r/n)^n in it. The compounding, if it happens, comes from where the reward lands.

Paid every minute, compounded only sometimes

The distinction that changes the realised yield is not the accrual frequency. It is whether the accrued reward stays in the earning balance.

Binance says Real-Time APR rewards are accumulated in the Earn Account. A balance that grows inside the earning product becomes the base for the next accrual, so the effective return converges on the compounded figure — the daily row in the table above.

Where a reward is credited to the Spot Wallet instead, it leaves the earning base. Each day’s reward then sits idle unless the holder re-subscribes it, and the return over a year is the sum of simple daily payments, which equals the APR. The published number and the received number diverge by exactly the compounding term: about 0.13 points at 5%, about 2.1 points at 20%.

That is why “paid daily” and “compounded daily” are different sentences, and why a product page that says the first is not claiming the second.

The tiered-rate problem

A tiered APR is the other place where the headline and the receipt separate.

Consider a product advertising a 4% Bonus Tiered APR on top of a 1.5% base. The bonus applies only to the first 500 USDT of a 10,000 USDT deposit. The blended rate on the whole balance is:

(1.5% × 10,000 + 4.0% × 500) / 10,000 = 1.70%

The advertised number is 5.5% if the page shows the two components side by side, and the number that applies to the deposit is 1.70%. Neither figure is wrong; only one of them is about your money. Binance’s own description — different levels “based on the amount of assets deposited” — is the accurate way to read it.

The compounding term on 1.70% is negligible: about 0.014 points. The tiering term is 3.8 points. When two effects differ by two orders of magnitude, the smaller one is not the one to study.

Reading a yield quote in four steps

1. Find out whether the number is an APR or an APY. If the page does not say, assume APR — it is the larger-looking of the two at any positive rate.
2. Find the compounding assumption. If rewards leave the earning balance, the realised yield is the APR; if they stay, compute the APY.
3. Find the tiers. Ask what share of the balance actually earns the advertised rate, and compute the blended figure.
4. Find the repricing clause. A rate that “can change every minute” is a variable rate, and the yield over a year is the average of the rates that happened, not the rate on the day you subscribed.

The cost side of the same account is a different calculation, covered in Binance spot fees. For why two products quoting the same-looking rate can be paying for entirely different things, stablecoin yield versus T-bill yield is the comparison that matters. And a quoted rate is not a risk measure: the questions that decide whether a yield is worth taking — whether the platform can pay it, and what the balance is exposed to while it waits — are set out in where exchange earn yield comes from.

Risk note. The regulatory definitions in this article are quoted from 12 CFR 1030.2 and 12 CFR 1026.22 as published on eCFR, and the Simple Earn mechanics from Binance’s own support page, all read on 2026-10-31. Rates, tiers and repricing policies change; the binding figures are the ones displayed in the product at the time of subscription. Nothing here is investment advice, and a quoted yield is not a promise of return.