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 over time compared to simple interest 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 times interest is compounded per year
• \( t \) — Time the money is invested for (in years)

Explanation: The formula accounts for how often interest is added to your balance, with more frequent compounding leading to greater growth.

3. Importance of Compounding Frequency

Details: The more frequently interest compounds, the greater your returns. Daily compounding yields slightly more than monthly, which yields more than annual compounding.

4. Using the Calculator

Tips: Enter your principal amount, annual interest rate (as a percentage), time period in years, and select 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 annual rate without compounding, while APY includes compounding effects. This calculator shows APY-like results.

Q2: How often do high-yield accounts typically compound?
A: Most compound daily, but some may compound monthly. Always check the account terms.

Q3: Are there limits on deposits for high-yield accounts?
A: Some accounts may have maximum balance limits or require minimum balances to earn the advertised rate.

Q4: How does this compare to CD or money market accounts?
A: CDs typically offer fixed rates for set terms, while high-yield savings accounts offer variable rates with more liquidity.

Q5: Are high-yield accounts FDIC insured?
A: Most offered by banks are FDIC insured up to $250,000 per depositor, per institution.