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 how high-yield savings accounts grow your money faster over time, especially with higher APY rates common in Canada.

2. How the Calculator Works

The calculator uses the compound interest formula:

Where:

• \( A \) — Final amount (CAD)
• \( P \) — Principal investment (CAD)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Compounding frequency per year
• \( t \) — Time in years

Explanation: More frequent compounding (e.g., monthly vs. annually) results in higher returns due to interest being calculated on interest more often.

3. Importance of Compounding Frequency

Details: Canadian high-interest savings accounts typically compound interest daily or monthly. Even small differences in compounding frequency can significantly impact long-term growth.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's a good high-yield savings rate in Canada?
A: As of 2023, rates around 4-5% APY are competitive. Online banks often offer better rates than traditional banks.

Q2: How is this different from simple interest?
A: Simple interest only calculates on the principal. Compound interest calculates on principal plus accumulated interest, leading to exponential growth.

Q3: Are these returns guaranteed?
A: Savings account rates can change. This calculator assumes a fixed rate for the entire period.

Q4: How does inflation affect these returns?
A: Real returns = nominal returns minus inflation. At 2% inflation, a 4.5% APY gives ~2.5% real return.

Q5: Are high-interest savings accounts taxable?
A: Yes, interest income is taxable in Canada. Consider TFSA accounts for tax-free growth.