1. What is the Compound Interest Formula?

The compound interest formula calculates how money grows over time when interest is earned on both the initial principal and the accumulated interest from previous periods. High-yield savings accounts (typically offering 5%+ APY) use this method to grow your money faster than traditional savings accounts.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

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

Explanation: More frequent compounding (e.g., monthly vs. annually) results in higher returns due to the "interest on interest" effect.

3. Importance of High-Yield Savings

Details: High-yield savings accounts offer significantly better returns than traditional savings accounts, helping combat inflation and grow emergency funds or short-term savings with minimal risk.

4. Using the Calculator

Tips: Enter your initial deposit, the account's interest rate (APY), time period, and compounding frequency. For most high-yield accounts, select "Monthly" compounding.

5. Frequently Asked Questions (FAQ)

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

Q2: Are high-yield savings accounts safe?
A: Yes, when from FDIC-insured banks (up to $250,000 per depositor).

Q3: What's the difference between APY and APR?
A: APY includes compounding effects, while APR doesn't. Always compare APY when evaluating savings accounts.

Q4: How much can I earn with a high-yield account?
A: At 5% APY, $10,000 grows to $16,289 in 10 years with monthly compounding.

Q5: Are there limits on withdrawals?
A: Federal Regulation D previously limited withdrawals to 6 per month, though this was suspended in 2020. Some banks may still impose limits.