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 accounts with simple interest over time.

2. How the Calculator Works

The calculator uses the compound interest formula:

Where:

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

Explanation: The more frequently interest is compounded, the greater the return. Daily compounding (n=365) yields slightly more than monthly compounding.

3. Importance of High-Yield Savings

Details: High-yield savings accounts typically offer interest rates 10-20 times higher than traditional 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%), select compounding frequency, and investment period in years.

5. Frequently Asked Questions (FAQ)

Q1: How often do high-yield savings accounts compound?
A: Most compound interest daily and credit it to your account monthly, though this varies by institution.

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

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