1. What is APY Compound Interest?

APY (Annual Percentage Yield) represents the real rate of return on your savings, accounting for compound interest. Unlike simple interest, compound interest earns interest on both the principal and previously earned interest, leading to exponential growth over time.

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

Explanation: The formula calculates how much your investment grows with compound interest, showing the power of compounding over time.

3. Importance of Compounding Frequency

Details: The more frequently interest is compounded, the greater the total interest earned. Daily compounding yields slightly more than monthly, which yields more than annual compounding for the same APY.

4. Using the Calculator

Tips: Enter your principal amount, annual interest rate (APY), select compounding frequency, and investment period. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR doesn't account for compounding, while APY does. APY gives you the true earning potential of your savings.

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

Q3: Is the interest taxable?
A: Yes, interest earned is considered taxable income in most jurisdictions.

Q4: Can I withdraw money anytime?
A: High-yield savings accounts typically allow withdrawals, but may have transaction limits.

Q5: How does this compare to CDs?
A: CDs usually offer higher rates but lock your money for a set term, while savings accounts offer liquidity.