High Yield Investment Calculator

Compound Interest Formula:

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

Principal Amount (P):

Annual Interest Rate (r):

Time Period (t):

years

Compounding Frequency (n):

Final Amount (A):

Interest Earned:

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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 investments grow exponentially over time, as you earn "interest on interest."

2. How the Calculator Works

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 shows how more frequent compounding (higher n) leads to greater returns, as interest is calculated on a growing balance more often.

3. Importance of Compounding Frequency

Details: Daily compounding yields more than monthly, which yields more than annual compounding. For example, $10,000 at 5% for 10 years grows to $16,470 with annual compounding but $16,486 with daily compounding.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as percentage (e.g., 5 for 5%), time in years, and select compounding frequency. 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, while compound interest is calculated on principal plus accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding leads to higher returns, though the difference diminishes as frequency increases (daily vs monthly has less impact than monthly vs yearly).

Q3: Are high-yield investments safe?
A: Generally, higher yields come with higher risk. FDIC-insured accounts (like high-yield savings) are safer than corporate bonds or stocks.

Q4: What's the Rule of 72?
A: A quick way to estimate doubling time: 72 divided by the interest rate gives approximate years to double your money.

Q5: How does inflation affect these calculations?
A: The calculator shows nominal returns. For real returns, subtract inflation rate from the interest rate.