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 Does the Calculator Work?

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 greater returns. The formula accounts for exponential growth over time.

3. Importance of High-Yield Accounts

Details: High-yield savings accounts (like Synchrony's 3.80% APY) offer significantly better returns than traditional savings accounts, helping combat inflation and grow emergency funds.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as percentage (e.g., 3.80 for 3.80%), time in years, and select compounding frequency. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APY and APR?
A: APY (Annual Percentage Yield) includes compounding effects, while APR (Annual Percentage Rate) doesn't. APY gives the true rate of return.

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

Q3: Are high-yield accounts FDIC insured?
A: Yes, as long as the bank is FDIC member (up to $250,000 per depositor, per account type).

Q4: Why does compounding frequency matter?
A: More frequent compounding means interest earns interest sooner, leading to slightly higher returns.

Q5: Are there withdrawal limits?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended during COVID.