High Yield Cash Account Calculator

Compound Interest Formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Principal Amount (P):

Annual Interest Rate (r):

Compounding Periods per Year (n):

Time (t):

years

Final Amount (A):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Compound Interest Formula?

The compound interest formula calculates the growth of an investment or savings account where interest is earned on both the initial principal and the accumulated interest from previous periods. It's particularly relevant for high-yield cash accounts like money market accounts or high-yield savings accounts.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

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 the exponential growth of money through compounding, where interest is added to the principal at regular intervals, resulting in interest earning interest.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for financial planning. It demonstrates how money can grow over time, especially in high-yield accounts, and highlights the value of starting to save early.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 4.5 for 4.5%), number of compounding periods per year (12 for monthly), and time in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.

Q2: How often do high-yield accounts typically compound?
A: Most compound daily or monthly, but this can vary by institution. More frequent compounding leads to slightly higher returns.

Q3: Are high-yield accounts safe?
A: They're generally low-risk, especially when FDIC-insured (up to $250,000 per depositor), but returns are typically lower than riskier investments.

Q4: Why does compounding frequency matter?
A: More frequent compounding results in slightly higher returns because interest is calculated on a growing balance more often.

Q5: How does this compare to CD or bond investments?
A: High-yield accounts offer more liquidity than CDs but may have slightly lower rates. Bonds typically offer higher returns but with more risk.