# What is Annual Percentage Yield?

Categories:

Decentralized Finance (DeFi)

## What is the definition of Annual Percentage Yield?

Annual Percentage Yield (APY) refers to the annualized rate of return from a financial investment — usually into something like a savings account (or a similar financial instrument that resembles a savings account such a cryptocurrency account) — that grows through some form of compounding.

## What is a real-life example of Annual Percentage Yield?

For example, with a savings account, after an initial deposit earns its first round of interest, the next round of interest is applied to both the initial deposit and the interest it earned in the first round. This compounding of earned interest continues throughout the year, at the end of which the account will demonstrate an APY that typically exceeds the simple interest rate itself.