1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows savings to grow at an accelerating rate over time, as you earn "interest on interest."

2. How Monthly Compounding Works

The calculator uses the compound interest formula with monthly compounding:

Where:

• \( A \) — Final amount
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (decimal)
• \( t \) — Time in years

Explanation: Interest is calculated and added to the principal 12 times per year (monthly), leading to faster growth than annual compounding.

3. Benefits of High-Yield Savings

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

4. Using the Calculator

Tips: Enter the initial deposit amount, annual interest rate (APY), and time period in years. The calculator will show the final balance and total interest earned.

5. Frequently Asked Questions (FAQ)

Q1: How often is interest compounded in high-yield accounts?
A: Most compound interest daily or monthly, which is more frequent than traditional accounts that may compound quarterly or annually.

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 APR and APY?
A: APR doesn't account for compounding, while APY does. Always compare APY when evaluating accounts.

Q4: How much more will I earn with monthly vs annual compounding?
A: For a $10,000 deposit at 4% over 5 years: monthly yields $2,210, annual yields $2,167 - a $43 difference.

Q5: Are there penalties for withdrawals?
A: Most allow 6 withdrawals/month without penalty, but check your specific account terms.