1. What is Daily Compounding?

Daily compounding means that interest is calculated and added to your principal balance every day, allowing your savings to grow at an accelerated rate compared to monthly or annual compounding.

2. How Does the Calculator Work?

The calculator uses the daily compounding formula:

Where:

• \( A \) — Final amount ($)
• \( P \) — Principal amount ($)
• \( r \) — Annual interest rate (decimal)
• \( t \) — Time in years

Explanation: The formula accounts for interest being calculated and added to the principal 365 times per year, resulting in exponential growth of your savings.

3. Benefits of Daily Compounding

Details: Daily compounding maximizes your earnings by applying interest to both your original principal and previously earned interest more frequently than other compounding periods.

4. Using the Calculator

Tips: Enter your initial deposit amount, annual interest rate (APY), and the number of years you plan to save. The calculator will show your final balance and total interest earned.

5. Frequently Asked Questions (FAQ)

Q1: How does daily compounding differ from monthly compounding?
A: Daily compounding calculates interest 365 times per year versus 12 times for monthly, leading to slightly higher returns over time.

Q2: What's the difference between APR and APY?
A: APR is the annual rate without compounding, while APY includes the effects of compounding (use APY for this calculator).

Q3: How much difference does daily compounding make?
A: For a $10,000 deposit at 5% over 10 years, daily compounding earns about $6,470 vs $6,290 for monthly compounding.

Q4: Are high-yield savings accounts FDIC insured?
A: Yes, most high-yield savings accounts at FDIC-insured banks are protected up to $250,000 per depositor.

Q5: Can I withdraw money from a high-yield savings account?
A: Yes, though some accounts may have withdrawal limits (typically 6 per month under Regulation D).