1. What is Daily Compounding Interest?

Daily compounding means your interest is calculated and added to your principal balance every day, allowing your savings to grow faster over time compared to simple interest or less frequent compounding.

2. How Does the Calculator Work?

The calculator uses the daily compounding formula:

Where:

• \( A \) — Final amount
• \( P \) — Principal amount (initial investment)
• \( r \) — Annual interest rate (4% or 0.04)
• \( n \) — Number of compounding periods per year (365 for daily)
• \( t \) — Time in years

Explanation: Your money grows exponentially because you earn interest on both your original principal and on the accumulated interest.

3. Benefits of High Yield Savings

Details: A 4% APY savings account offers significantly better returns than traditional savings accounts while maintaining FDIC insurance protection (up to $250,000 per account).

4. Using the Calculator

Tips: Enter your initial deposit amount and the number of years you plan to save. The calculator assumes interest is compounded daily at a fixed 4% APY.

5. Frequently Asked Questions (FAQ)

Q1: Is 4% APY realistic for savings accounts?
A: Yes, several online banks currently offer high-yield savings accounts with APYs around 4-5% (as of 2023).

Q2: How often is interest paid?
A: Most banks pay interest monthly, though it compounds daily in high-yield accounts.

Q3: Are there any risks?
A: FDIC-insured accounts have virtually no risk, though rates can change over time.

Q4: How does this compare to investing?
A: Savings accounts are safer but typically offer lower returns than investments like stocks over long periods.

Q5: Are there withdrawal limits?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended during COVID.