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 (HYSAs) powerful for growing your money over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

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

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

3. Importance of Compounding Frequency

Details: The more frequently interest compounds, the greater your returns. Daily compounding yields more than monthly, which yields more than annually.

4. Using the Calculator

Tips: Enter your initial deposit, annual interest rate (APY), select how often interest compounds, and the time period. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR doesn't account for compounding, while APY does. Always use APY for HYSA calculations.

Q2: How often do HYSAs typically compound?
A: Most HYSAs compound interest daily and pay it monthly.

Q3: Are there limits on HYSA deposits?
A: No legal limits, but banks may impose their own limits. FDIC insurance covers up to $250,000 per depositor.

Q4: How does this compare to CD returns?
A: CDs typically offer fixed rates for set terms, while HYSA rates can fluctuate but offer liquidity.

Q5: Are HYSA interest rates guaranteed?
A: No, rates can change based on market conditions and Federal Reserve policy.