Bank Rate High Yield Savings Calculator Tool

Compound Interest Formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Principal Amount (P):

Annual Interest Rate (r):

Time Period (t):

years

Compounding Frequency (n):

Final Amount (A):

Interest Earned:

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1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It causes wealth to grow faster than simple interest, where interest is calculated only on the principal amount.

2. How the Calculator Works

The calculator uses the compound interest formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Where:

$ A $ — Final amount ($)
$ 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) results in higher returns. The formula shows how money grows exponentially over time.

3. Benefits of High-Yield Savings

Details: High-yield savings accounts typically offer interest rates 10-25 times higher than traditional savings accounts, allowing your money to grow faster while remaining FDIC-insured.

4. Using the Calculator

Tips: Enter the initial deposit amount, expected annual interest rate (APY), time horizon, and compounding frequency. Try different scenarios to see how small changes can significantly impact your savings growth.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. APY gives a more accurate picture of your earnings.

Q2: How often do high-yield savings accounts compound?
A: Most compound daily and pay interest monthly, but check with your specific bank as terms may vary.

Q3: Are high-yield savings accounts safe?
A: Yes, when offered by FDIC-insured banks (up to $250,000 per depositor, per account category).

Q4: How much can I realistically earn?
A: With current rates around 4-5% APY, a $10,000 deposit could earn about $400-$500 in a year with daily compounding.

Q5: When does compound interest work best?
A: Compound interest works best with (1) higher principal, (2) higher interest rates, (3) more frequent compounding, and (4) longer time horizons.