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, especially over long periods.

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: More frequent compounding (higher n) results in higher returns. The formula accounts for exponential growth of your investment.

3. Benefits of High-Yield Accounts

Details: High-yield savings accounts offer significantly higher interest rates than traditional savings accounts, allowing your money to grow faster while remaining liquid and FDIC-insured.

4. Using the Calculator

Tips: Enter your initial investment, annual interest rate (APY), compounding frequency (typically monthly for savings accounts), and investment period. All values must be positive.

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 savings calculations.

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

Q3: Are high-yield accounts safe?
A: FDIC-insured accounts are safe up to $250,000 per depositor per institution.

Q4: How does compounding frequency affect returns?
A: More frequent compounding (daily vs. monthly) yields slightly higher returns, especially over long periods.

Q5: Can I withdraw money anytime?
A: Most high-yield savings accounts allow 6 withdrawals per month without penalty under Regulation D.