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 often called "interest on interest" and can significantly boost savings growth over time, especially with high-yield accounts.

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 compounding periods per year
• \( t \) — Time the money is invested for (years)

Explanation: More frequent compounding (higher n) leads to greater returns. Higher interest rates and longer time periods exponentially increase growth.

3. Importance of High-Yield Savings

Details: High-yield savings accounts typically offer interest rates 10-25 times higher than traditional savings accounts, making compound interest much more powerful for growing your savings.

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate as a percentage (e.g., 4.5 for 4.5%), time in years, and select compounding frequency. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How often do high-yield savings accounts compound?
A: Most compound interest daily and pay monthly, but check with your specific bank as policies vary.

Q2: Are high-yield savings accounts safe?
A: Yes, when from FDIC-insured banks (up to $250,000 per depositor per account type).

Q3: What's a good high-yield savings rate?
A: As of 2023, rates between 4-5% APY are competitive, but this changes with Federal Reserve policies.

Q4: How does this compare to regular savings accounts?
A: Traditional savings accounts often pay 0.01-0.1% APY, while high-yield accounts pay 4-5% APY - a huge difference over time.

Q5: Are there limits on withdrawals?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended during COVID. Some banks may still enforce limits.