1. What is the Compound Interest Formula?

The compound interest formula calculates how money grows over time when interest is earned on both the initial principal and the accumulated interest. This is how high-yield savings accounts and other interest-bearing accounts work.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Final amount
• \( P \) — Principal investment
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of compounding periods per year
• \( t \) — Time the money is invested for (years)

Explanation: The more frequently interest is compounded, the greater the final amount will be due to the "interest on interest" effect.

3. Importance of Compound Interest

Details: Understanding compound interest helps with financial planning, showing how small differences in rates or compounding frequency can significantly impact long-term savings growth.

4. Using the Calculator

Tips: Enter your initial deposit, the account's annual percentage yield (APY), how many years you'll keep the money invested, and how often interest is compounded. Common high-yield accounts compound interest daily.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APY and APR?
A: APY includes compounding effects while APR doesn't. APY gives you the true annual rate of return.

Q2: How often do high-yield accounts compound?
A: Most compound daily, but check with your specific bank as policies vary.

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

Q4: How does this compare to CD accounts?
A: CDs typically offer higher rates but require locking up funds for a term, while high-yield savings are liquid.

Q5: Can I use this for other investments?
A: The formula works for any compound growth scenario, though actual investment returns may vary more.