High Yield Savings Calculator Vanguard Money Market

Compound Interest Formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Principal Amount (P):

Annual Interest Rate (r):

Time Period (t):

years

Compounding Frequency (n):

Final Amount (A):

Interest Earned:

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1. What is the Compound Interest Formula?

The compound interest formula calculates how money grows over time when interest is earned on both the principal and accumulated interest. This is particularly relevant for high-yield savings accounts like Vanguard money market funds (e.g., VMFXX currently offering ~4.70% APY).

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

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 (daily vs. monthly) leads to slightly higher returns due to the "interest on interest" effect.

3. Importance of High Yield Savings

Details: Vanguard money market funds like VMFXX offer higher yields than traditional savings accounts while maintaining liquidity and safety. Understanding compound growth helps with financial planning.

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate (e.g., 4.7 for 4.7%), time in years, and select compounding frequency. Daily compounding is typical for money market funds.

5. Frequently Asked Questions (FAQ)

Q1: How does APY differ from APR?
A: APY (Annual Percentage Yield) includes compounding effects, while APR (Annual Percentage Rate) doesn't. For daily compounding, APY = (1 + APR/365)^365 - 1.

Q2: Are Vanguard money market funds FDIC insured?
A: No, but they invest in high-quality, short-term debt instruments and are considered very low risk.

Q3: How often do rates change?
A: Money market rates adjust with Federal Reserve policy changes, typically tracking the federal funds rate.

Q4: What's the difference between VMFXX and a bank savings account?
A: VMFXX may offer higher yields but isn't FDIC insured. Bank savings accounts have insurance but often lower rates.

Q5: Are there tax implications?
A: Interest is taxable as ordinary income. Some state tax exemptions may apply for government securities in the fund.