1. What is the Compound Interest Formula?

The compound interest formula calculates how much your savings will grow when interest is earned on both the principal and accumulated interest. This is the key principle behind high-yield savings accounts.

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 "interest on interest" effect.

3. Importance of Compound Interest

Details: Compound interest can significantly boost savings over time, especially with higher rates and longer time horizons. It's why starting to save early is so powerful.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as percentage (e.g., 3.5 for 3.5%), time in years, and select compounding frequency. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal, while compound interest is calculated on principal plus accumulated interest.

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

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

Q4: Why does compounding frequency matter?
A: More frequent compounding means interest is calculated and added to your balance more often, leading to slightly higher returns.

Q5: How can I maximize my savings growth?
A: Look for accounts with higher APYs, compound frequently, and add to your principal regularly.