High Interest Savings Account Calculator

Compound Interest Formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Principal Amount (P):

Annual Interest Rate (r):

Time Period (t):

years

Compounding Frequency (n):

Final Amount (A):

Interest Earned:

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1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It causes wealth to grow faster than simple interest because you earn "interest on interest."

2. How the Calculator Works

The calculator uses the compound interest formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

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 formula accounts for periodic compounding, where interest is added to the principal at regular intervals, creating exponential growth.

3. Importance of Compounding Frequency

Details: The more frequently interest is compounded, the greater the final amount. Daily compounding yields slightly more than monthly, which yields more than annually, for the same nominal rate.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a percentage), time period in years, and select compounding frequency. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. APY will be higher than APR for compounding more frequent than annual.

Q2: How does compounding frequency affect returns?
A: More frequent compounding leads to higher returns. For example, $10,000 at 5% for 10 years: annually = $16,289, monthly = $16,470, daily = $16,486.

Q3: What's the Rule of 72?
A: A quick way to estimate doubling time: 72 divided by the interest rate gives approximate years to double your money (e.g., at 6%, money doubles in ~12 years).

Q4: Are high-interest savings accounts safe?
A: Generally yes, if from an FDIC-insured bank (US) or similar deposit insurance in other countries. They're low-risk but may have lower returns than investments.

Q5: How do I maximize compound interest?
A: Start early, choose higher rates, compound frequently, add to principal regularly, and avoid withdrawing earnings to let compounding work fully.