The term **APY** stands for **Annual Percentage Yield**. The term is the amount of annual increase of capital. In the case of forecasting APY percentage, **compound interest** should be considered.

For example, with a five percent APY, after one year, $ 100 becomes $ 105.

#### Simple profit versus compound profit

In APY, compound interest must be considered. To better understand APY, you first need to learn the difference between simple profit and compound profit.

Simple interest is the interest you get on your principal deposit, while compound interest is the interest you get on depositing your funds.

Compound profit allows you to make a profit over time, which is why it is a powerful investment tool. Simple interest does not have such a thing and only refers to the profit from the main deposit.

#### How to calculate APY?

The APY calculation is based on the following formula:

`APY = (1 + r / n) n - 1`
**r:** r is the periodic rate of return (also called the annual APR.)

**n:** n is the number of compound years.

For example, we have a rate of r equal to 55.44, so I will calculate:

`APY = (1+ 55.44 // 365) 365 - 1 = 74.02`