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 grow faster than traditional savings accounts 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 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 on your savings.

3. Importance of High-Yield Savings

Details: High-yield savings accounts (like Axos Bank's 4.66% APY) can significantly grow your emergency fund or short-term savings compared to traditional savings accounts.

4. Using the Calculator

Tips: Enter your initial deposit, the APY rate (like 4.66%), the time period, and how often interest compounds. Daily compounding yields slightly more than monthly.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APY and APR?
A: APY (Annual Percentage Yield) includes compound interest, while APR (Annual Percentage Rate) doesn't. APY gives the true rate of return.

Q2: How often do high-yield accounts compound?
A: Most compound daily and pay monthly, but check with your specific bank.

Q3: Are these accounts FDIC insured?
A: Yes, high-yield savings at FDIC-insured banks are protected up to $250,000 per depositor.

Q4: What's the benefit over CDs?
A: Savings accounts offer liquidity - you can withdraw anytime without penalty, unlike CDs.

Q5: How does inflation affect savings?
A: Even at 4.66% APY, if inflation is higher, your purchasing power may decrease over time.