1. What is the Compound Interest Formula?

The compound interest formula calculates how much your money grows when interest is earned on both the principal and accumulated interest. This is particularly powerful for high-yield CDs where compounding can significantly boost returns over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Final amount including interest
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of compounding periods per year
• \( t \) — Time the money is invested for (years)

Explanation: More frequent compounding (higher n) leads to greater returns due to the exponential nature of the formula.

3. Importance of High-Yield CDs

Details: High-yield CDs from banks like Marcus (4.20% APY) offer significantly better returns than traditional savings accounts while maintaining FDIC insurance protection up to $250,000.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as a percentage (e.g., 4.2 for 4.2%), time in years, and select compounding frequency. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APY and APR?
A: APY includes compounding effects while APR doesn't. For comparing CDs, always use APY.

Q2: How often do high-yield CDs compound?
A: Most compound daily, but pay interest monthly or at maturity. Always check terms.

Q3: Are there penalties for early withdrawal?
A: Yes, CDs typically charge several months' interest for early withdrawals.

Q4: What's the FDIC insurance limit?
A: $250,000 per depositor, per bank, for each account ownership category.

Q5: How do CD rates compare to inflation?
A: Currently, high-yield CDs often outpace inflation, providing real returns.