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 ($)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of compounding periods per year
• \( t \) — Time the money is invested (years)

Explanation: The more frequently interest is compounded, the greater the return due to the "interest on interest" effect.

3. Importance of High-Yield Savings

Details: High-yield savings accounts typically offer interest rates 10-25 times higher than regular savings accounts, making them ideal for emergency funds or short-term savings goals.

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate as a percentage (e.g., 3.5 for 3.5%), compounding frequency (usually 12 for monthly), and time in years.

5. Frequently Asked Questions (FAQ)

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

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 (Annual Percentage Yield) includes compounding effects while APR (Annual Percentage Rate) does not.

Q4: Are there withdrawal limits?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended in 2020.

Q5: How do I choose the best account?
A: Compare APYs, fees, minimum balances, and customer service. Online banks often offer higher rates.