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 savings accounts grow faster over time compared to simple interest.

2. How the Calculator Works

The calculator uses the compound interest formula:

Where:

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

Explanation: The formula accounts for how often interest is added to your savings, which affects how quickly your money grows.

3. Importance of Compounding Frequency

Details: The more frequently interest is compounded, the greater your returns. Daily compounding yields slightly more than monthly, which yields more than annual compounding.

4. Using the Calculator

Tips: Enter your initial deposit, expected annual interest rate, investment period, and how often interest is compounded. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR is the annual rate without compounding, while APY includes compounding effects. This calculator shows APY-like results.

Q2: How does compound interest benefit long-term savings?
A: Over long periods, compound interest creates exponential growth as you earn "interest on interest."

Q3: Are high-interest savings accounts FDIC insured?
A: Most are, but always verify with your bank. FDIC insurance protects up to $250,000 per depositor.

Q4: What's a realistic interest rate for savings accounts?
A: As of 2023, high-yield savings accounts typically offer 3-5% APY, but rates fluctuate with the economy.

Q5: How often do banks compound interest?
A: Most compound daily but pay monthly, though policies vary by institution.