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 what makes high-yield savings accounts grow faster than traditional savings accounts over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Future value of the investment
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of times interest is compounded per year
• \( t \) — Time the money is invested for (in years)

Explanation: The more frequently interest is compounded, the greater the return on your savings.

3. Importance of High Yield Savings

Details: High-yield savings accounts typically offer interest rates 10-25 times higher than traditional savings accounts, helping your money grow faster while remaining FDIC-insured.

4. Using the Calculator

Tips: Enter your initial deposit, the annual interest rate (APY), the number of years you plan to save, and how often the interest compounds. 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. Savings accounts typically advertise APY.

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

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

Q4: How does this compare to CDs or money market accounts?
A: HYSA offer more liquidity than CDs but similar rates. Money markets may have slightly higher rates but sometimes require higher minimum balances.

Q5: Are there limits on withdrawals?
A: Federal Regulation D previously limited savings withdrawals to 6 per month, though this was suspended in 2020. Some banks may still impose limits.