APY stands for Annual Percentage Return. Thanks to it, we can compare various investment offers in terms of profitability, which is very helpful in making a decision to invest our funds.

The biggest advantage of APY is that it includes compound interest in its calculations. This is of great importance in a situation where interest is not charged after the end of the investment, as for example on a bank deposit, but during its duration, eg monthly or even daily. Thanks to this, the initial capital is regularly increased by added interest.

Let's imagine this situation: you deposit PLN 1,000 on some investment platform. The interest rate offered is 12% per annum, but interest is charged monthly. Thanks to the fact that the capital after the first month will increase by PLN 10 in interest, in the next month the interest is calculated from the sum of PLN 1010. A slight difference, but still. After a year, the profit will be PLN 126.84 instead of PLN 120 with interest only after the investment is completed. Thus, the APY is 12.68%.

And now an example for the daily capitalization of interest (found, for example, in cryptocurrency staking) - we pay PLN 1,000 at 12% per year in the same way, but thanks to the daily increase of the capital with interest, we have a profit of PLN 127.47 after 12 months, which gives APY equal to 12.74 %.

Of course, with small amounts, such differences are almost insignificant, but the longer the time or the greater the value of the invested funds, the greater the profits. For this reason, it is always worth looking for information on the APY of a given investment.

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