1. What is APY?

APY (Annual Percentage Yield) represents the real rate of return earned on an investment, taking into account the effect of compounding interest. The 5.5% APY in this calculator assumes interest is compounded daily.

2. How Does Daily Compounding Work?

The calculator uses the daily compounding formula:

Where:

• \( A \) — Final amount ($)
• \( P \) — Principal investment ($)
• \( 0.055 \) — 5.5% annual interest rate
• \( 365 \) — Days in year for compounding
• \( t \) — Time in years

Explanation: Interest is calculated and added to the principal each day, leading to exponential growth over time.

3. Importance of Compounding Frequency

Details: More frequent compounding (daily vs. monthly or yearly) results in higher returns due to the "interest on interest" effect. Daily compounding maximizes growth potential.

4. Using the Calculator

Tips: Enter your initial investment amount and the time period in years. The calculator will show the projected value with daily compounding at 5.5% APY.

5. Frequently Asked Questions (FAQ)

Q1: How does 5.5% APY compare to simple interest?
A: Simple interest would earn 5.5% of principal each year. With compounding, you earn interest on previously earned interest, resulting in higher total returns.

Q2: Is this calculator accurate for real-world savings?
A: It assumes a constant 5.5% APY with no withdrawals or additional deposits. Actual returns may vary based on account terms.

Q3: How much would $10,000 grow in 5 years at 5.5% APY?
A: Approximately $13,150.92 with daily compounding (use the calculator for precise amounts).

Q4: What's the difference between APR and APY?
A: APR doesn't account for compounding, while APY does. APY gives a more accurate picture of actual earnings.

Q5: Are there accounts that offer 5.5% APY?
A: High-yield savings accounts and CDs sometimes offer rates this high, especially during periods of high interest rates.