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 often called "interest on interest" and can significantly boost savings growth over time.

2. How the Calculator Works

The calculator uses the compound interest formula:

Where:

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

Explanation: More frequent compounding (higher n) leads to greater returns. The formula accounts for both the principal growth and the compounding effect.

3. Benefits of High-Yield Savings

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

4. Using the Calculator

Tips: Enter the initial deposit amount, annual interest rate (APY), compounding frequency (typically monthly = 12), 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 is the simple interest rate, while APY includes compounding effects. Always use APY for savings calculations.

Q2: How often do high-yield accounts compound?
A: Most compound daily (n=365) but pay monthly, though monthly compounding (n=12) is common for calculations.

Q3: Are high-yield savings accounts safe?
A: Yes, when offered by FDIC-insured banks (up to $250,000 per depositor).

Q4: How does this compare to investing?
A: Savings accounts are lower risk but typically offer lower returns than long-term investments like stocks.

Q5: Can I add monthly contributions?
A: This calculator shows basic compounding. For regular contributions, use a future value calculator.