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 what makes high-yield savings accounts grow faster than traditional savings accounts over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

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

Explanation: The more frequently interest is compounded (higher n), the more interest you'll earn over time.

3. Importance of High-Yield Savings

Details: High-yield savings accounts typically offer interest rates 10-25 times higher than traditional savings accounts, making them an excellent place to keep emergency funds or short-term savings.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a decimal, e.g., 0.05 for 5%), number of compounding periods per year (12 for monthly), and time in years.

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 accumulated interest.

Q2: How often do high-yield accounts compound interest?
A: Most compound interest daily or monthly, which is better than annually.

Q3: Are high-yield savings accounts safe?
A: Yes, when offered by FDIC-insured banks, they're just as safe as traditional savings accounts.

Q4: What's a good interest rate for a high-yield account?
A: As of 2023, rates between 3-5% APY are considered good for high-yield savings.

Q5: How does compounding frequency affect earnings?
A: More frequent compounding (e.g., daily vs. monthly) results in slightly higher earnings over time.