1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. High-yield savings accounts use compound interest to grow your money faster than traditional savings accounts.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

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

Explanation: The formula accounts for how often interest is compounded (daily, monthly, quarterly, etc.) which affects total earnings.

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 a decimal (5% = 0.05), compounding frequency (12 for monthly), and time in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How often do high-yield accounts compound?
A: Most compound interest daily and pay out monthly, but check with your specific bank for details.

Q2: What's the difference between APY and APR?
A: APY (Annual Percentage Yield) includes compounding effects while APR (Annual Percentage Rate) does not.

Q3: Are high-yield savings accounts safe?
A: Yes, when offered by FDIC-insured banks (up to $250,000 per depositor).

Q4: How much can I earn with a high-yield account?
A: With current rates around 4-5%, a $10,000 deposit could earn $400-$500 in a year with monthly compounding.

Q5: Are there withdrawal limits?
A: Federal Regulation D limits certain types of withdrawals to 6 per month, though this was suspended during COVID.