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, as you earn "interest on interest."

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 compounding periods per year
• \( t \) — Time the money is invested for (years)

Example: $10,000 at 3.8% APY compounded monthly for 5 years would grow to $12,082.94.

3. Benefits of High-Yield Savings

Details: High-yield savings accounts (like Synchrony's 3.80% APY) offer significantly higher interest than traditional savings accounts (typically 0.01%-0.05%), helping your money grow faster while remaining FDIC-insured.

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate as a percentage (e.g., 3.8 for 3.8%), time in years, and select compounding frequency. More frequent compounding yields higher returns.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APY and APR?
A: APY (Annual Percentage Yield) includes compounding effects, while APR (Annual Percentage Rate) does not. APY gives a more accurate picture of earnings.

Q2: How often do high-yield accounts compound?
A: Most compound daily and pay interest monthly, but check with your specific bank.

Q3: Are there limits on withdrawals?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended during COVID-19.

Q4: Is my money safe in these accounts?
A: Yes, if the bank is FDIC-insured (up to $250,000 per depositor).

Q5: How do taxes work on interest?
A: Interest is taxable as ordinary income. You'll receive a 1099-INT form if you earn $10+ in interest.