The video discusses the difference between APR and APY and how important understanding it is for increasing your ROI. APR compounds once yearly, while APY compounds based on the frequency of compounding. By using the right strategy and compounding frequency, you can earn double or quadruple your ROI. The video provides examples of using two different strategies with different APR and APY rates, with APY being the more profitable option. The video also introduces a calculator to calculate the difference between APR and APY, and encourages viewers to ask questions in the comments section.
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Understanding the Difference between APR and APY in Investments
Investing your money is crucial to growing your wealth over time. However, it’s not as simple as just putting your money in the bank and waiting for it to grow. There are different investment strategies that you can use to maximize your ROI. One important thing to understand when it comes to investments is the difference between APR and APY.
What is APR?
APR stands for Annual Percentage Rate. This is the interest rate that you’ll earn on your investment annually. It only compounds once a year, so you’ll earn the same amount of interest even if you keep your money in the account for multiple years.
What is APY?
APY stands for Annual Percentage Yield. This is the interest rate that you’ll earn on your investment annually as well. The main difference with APY is that it compounds based on the compounding frequency. This means that you’ll earn interest on the interest you earn, so your investment will grow faster.
The Importance of APY
APY is important because it can help you earn more money on your investment. For example, if you have an APR of 10% on a $1000 investment, you’ll earn $100 in one year. But if you have an APY of 10% that compounds daily, you can earn up to $110.47 in one year.
Using APY in Investment Strategies
Different investment strategies use different compounding frequencies, which can affect your APY. For example, the Farms and Pancakes strategy typically yields around 2% APR, but the Grizzly Farms strategy yields 21% APY with the standard strategy and 35% APY with the Grizzly strategy.
Using an APR to APY Calculator
To determine your APY, you can use an APR to APY calculator. This calculator takes into account the compounding frequency to give you a more accurate estimate of your earnings.
In conclusion, understanding the difference between APR and APY is important when it comes to investing your money. By choosing investments with higher APYs, you can maximize your ROI and grow your wealth faster.
