1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It's what makes high-yield savings accounts grow faster than traditional savings accounts over time.

2. How the Calculator Works

The calculator uses the compound interest formula:

Where:

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

Explanation: The formula accounts for how often interest is compounded (daily, monthly, quarterly, etc.), which significantly affects total earnings.

3. Importance of High-Yield Savings

Details: High-yield savings accounts typically offer interest rates 10-20 times higher than traditional savings accounts, making compound interest effects much more significant for growing your savings.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as a decimal (5% = 0.05), compounding frequency (12 for monthly), and time in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How often do high-yield accounts compound?
A: Most compound interest daily and pay monthly, but check with your specific bank.

Q2: What's a good high-yield savings rate?
A: As of 2023, rates between 3-5% APY are competitive, but this changes with market conditions.

Q3: Are there limits on withdrawals?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended during COVID.

Q4: How does this compare to CDs?
A: CDs typically offer higher rates but require locking up funds for a set term.

Q5: Is my money safe in these accounts?
A: Yes, if the bank is FDIC-insured (up to $250,000 per depositor, per account type).