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 and with more frequent compounding 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 compounding periods per year
• \( t \) — Time the money is invested for (years)

Explanation: The formula accounts for how interest builds upon itself, with more frequent compounding leading to greater returns.

3. Importance of High-Yield Accounts

Details: High-yield savings accounts typically offer interest rates 10-25 times higher than traditional savings accounts, making compound interest significantly more powerful for growing your savings.

4. Using the Calculator

Tips: Enter your initial deposit, annual interest rate (APY), time period, and compounding frequency. All values must be positive numbers. The calculator will show your final balance and total interest earned.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR is the simple interest rate, while APY includes compound interest effects. Always use APY for high-yield account calculations.

Q2: How often do high-yield accounts compound?
A: Most compound daily, but some may compound monthly. Daily compounding yields slightly better returns.

Q3: Are there limits on deposits?
A: Some high-yield accounts may have minimum balance requirements or maximum limits for the highest rate tier.

Q4: How does this compare to investing?
A: While safer than investing, returns are typically lower. High-yield accounts are ideal for emergency funds or short-term savings goals.

Q5: Are these accounts FDIC insured?
A: Yes, high-yield savings accounts at FDIC-insured banks are protected up to $250,000 per depositor.