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 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 more frequently interest is compounded, the greater the return, as interest is earned on interest more often.

3. Importance of Compounding

Details: Compounding can significantly boost savings over time. Even small differences in interest rates or compounding frequency can lead to substantial differences in final amounts.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR is the simple interest rate, while APY includes compounding effects. Always use APY for HYSA calculations.

Q2: How often do HYSAs typically compound?
A: Most high-yield savings accounts compound interest daily and pay it monthly.

Q3: Are there limits on HYSA withdrawals?
A: Federal regulations limit certain withdrawals to 6 per month, though this doesn't affect interest calculations.

Q4: How does this compare to CD accounts?
A: CDs typically offer higher rates but lock your money for a term. HYSAs offer more liquidity.

Q5: Is the interest taxable?
A: Yes, interest earned is considered taxable income in the year it's credited to your account.