1. What is Monthly Compounding?

Monthly compounding means that interest is calculated on both the initial principal and the accumulated interest from previous periods each month. This leads to faster growth compared to simple interest or annual compounding.

2. How the Calculator Works

The calculator uses the monthly compounding formula:

Where:

• \( A \) — Final amount
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (in decimal)
• \( t \) — Time the money is invested for (in years)

Explanation: The interest rate is divided by 12 for monthly compounding, and the exponent represents the total number of compounding periods (12 months × number of years).

3. Benefits of High Yield Savings

Details: High yield savings accounts like Marcus by Goldman Sachs offer significantly higher interest rates than traditional savings accounts, with FDIC insurance up to $250,000. Monthly compounding maximizes your earnings.

4. Using the Calculator

Tips: Enter your initial deposit, the current APY (e.g., 4.40%), and the number of years you plan to save. The calculator will show your projected balance and interest earned.

5. Frequently Asked Questions (FAQ)

Q1: How often is interest paid in high yield savings accounts?
A: Most high yield savings accounts, including Marcus, pay interest monthly and compound it daily.

Q2: What's the difference between APY and APR?
A: APY (Annual Percentage Yield) includes compounding, while APR (Annual Percentage Rate) does not. APY gives a more accurate picture of earnings.

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

Q4: How does this compare to CD rates?
A: CDs typically offer slightly higher rates but require locking up your money for a set term. Savings accounts offer more liquidity.

Q5: Is my money safe in a high yield savings account?
A: Yes, when the account is FDIC-insured (like Marcus), your money is protected up to $250,000 per depositor.