1. What is High Yield Savings?

High-yield savings accounts offer significantly higher interest rates than traditional savings accounts, typically from online banks. They compound interest monthly, helping your money grow faster while remaining FDIC-insured.

2. How Monthly Compounding Works

The calculator uses the monthly compounding formula:

Where:

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

Explanation: Interest is calculated and added to the principal each month, resulting in exponential growth over time.

3. Importance of APY

Details: The Annual Percentage Yield (APY) reflects the actual rate of return, accounting for compounding. Higher APY means faster growth of your savings.

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate in percentage (e.g., 4.5 for 4.5%), and time period in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How does this compare to daily compounding?
A: Daily compounding yields slightly more (about 0.1-0.2% higher APY) but monthly is standard for most high-yield accounts.

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

Q3: How often do rates change?
A: Rates fluctuate with the federal funds rate. Online banks typically adjust rates more frequently than traditional banks.

Q4: What's the difference between APR and APY?
A: APR doesn't account for compounding, while APY does. Always compare APY when evaluating accounts.

Q5: Are there withdrawal limits?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended in 2020.