1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows savings to grow at an accelerating rate compared to simple interest, especially over long periods.

2. How the Calculator Works

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: The more frequently interest is compounded, the greater the return. Daily compounding yields slightly more than monthly, which yields more than annually.

3. Importance of High-Yield Savings

Details: High-yield savings accounts typically offer interest rates 10-25 times higher than traditional savings accounts, making compound interest significantly more powerful for growing your money.

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate as a percentage, time in years, and select compounding frequency. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How often do high-yield accounts compound interest?
A: Most compound daily but pay monthly, though this varies by institution.

Q2: Are high-yield savings accounts safe?
A: Yes, when from FDIC-insured banks (up to $250,000 per depositor).

Q3: What's the difference between APR and APY?
A: APR doesn't account for compounding; APY does and shows true annual earnings.

Q4: How much can I earn with $10,000 at 4% APY?
A: After 5 years with monthly compounding: ≈$12,210 (≈$2,210 interest).

Q5: Are there withdrawal limits?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended in 2020.