1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows savings to grow at an accelerating rate compared to simple interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Final amount ($)
• \( P \) — Principal amount ($)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of compounding periods per year
• \( t \) — Time in years

Explanation: The formula accounts for how frequently interest is compounded, which significantly affects the final amount.

3. Importance of Comparing Accounts

Details: Small differences in interest rates or compounding frequency can lead to substantial differences in earnings over time. This calculator helps identify which savings account would yield better returns.

4. Using the Calculator

Tips: Enter the principal amount, time period, and details for two different savings accounts. Compare the results to see which account would grow your money faster.

5. Frequently Asked Questions (FAQ)

Q1: How does compounding frequency affect results?
A: More frequent compounding (daily vs. monthly vs. yearly) results in higher returns due to the "interest on interest" effect.

Q2: What's considered a good interest rate for savings?
A: As of 2023, high-yield savings accounts typically offer 3-5% APY, much higher than traditional savings accounts.

Q3: Should I always choose the account with highest rate?
A: Consider other factors like fees, minimum balances, and accessibility, but rate is a primary factor for long-term growth.

Q4: How does this differ from CD or investment returns?
A: Savings accounts offer liquidity but generally lower returns than CDs or investments, with less risk.

Q5: Can I use this for other compounding scenarios?
A: Yes, this formula applies to any compound growth calculation, though specific accounts may have different rules.