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, where interest is calculated only on the principal amount.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Future value of investment
• \( P \) — 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: The more frequently interest is compounded, the greater the return, as interest is earned on interest more often.

3. Importance of High Yield Savings

Details: High yield savings accounts typically offer interest rates much higher than traditional savings accounts, helping your money grow faster while remaining FDIC-insured and liquid.

4. Using the Calculator

Tips: Enter your initial deposit amount, the annual interest rate (APY), the number of years you plan to save, and how often interest is compounded. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. Always compare APY when evaluating savings accounts.

Q2: How often do high yield savings accounts compound?
A: Most compound interest daily, though some may compound monthly. Daily compounding yields slightly higher returns.

Q3: Are high yield savings accounts safe?
A: Yes, when offered by FDIC-insured banks (up to $250,000 per depositor, per account category).

Q4: How do taxes affect my savings?
A: Interest earned is taxable income. Consider tax-advantaged accounts like IRAs for long-term savings.

Q5: Can I access my money in a high yield savings account?
A: Yes, these accounts typically allow 6+ withdrawals per month, though some restrictions may apply.