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 the Calculator Works

The calculator uses the compound interest formula:

Where:

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

Explanation: The more frequently interest is compounded, the greater the return, which is why high-yield accounts with daily or monthly compounding are advantageous.

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 ideal for emergency funds or short-term savings goals.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as decimal (e.g., 0.05 for 5%), compounding frequency (12 for monthly), and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How often do high-yield accounts compound?
A: Most compound daily, but pay out monthly. This calculator lets you specify any compounding frequency.

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

Q3: What's the difference between APY and APR?
A: APY includes compounding effects, while APR doesn't. This calculator uses APR for more precise calculations.

Q4: How much can I earn with a high-yield account?
A: With a $10,000 deposit at 4% APY compounded monthly, you'd earn about $408 in one year.

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