1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. This results in exponential growth of your savings over time, making it a powerful tool for wealth building.

2. How the Calculator Works

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. Daily compounding (n=365) yields slightly more than monthly compounding (n=12).

3. Benefits of High Yield Savings

Details: High yield savings accounts typically offer interest rates 10-20 times higher than traditional savings accounts, allowing your money to grow faster while maintaining liquidity and FDIC insurance protection.

4. Using the Calculator

Tips: Enter your initial deposit, the annual interest rate (APY), the time period you plan to save, and how often interest is compounded. 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 compare APY when evaluating savings accounts.

Q2: How often do high yield savings accounts compound?
A: Most compound interest daily and credit it to your account monthly.

Q3: Are there limits on withdrawals?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended during COVID-19.

Q4: How safe are high yield savings accounts?
A: They're very safe when from FDIC-insured banks (up to $250,000 per depositor, per bank).

Q5: Can interest rates change?
A: Yes, unlike CDs, savings account rates can change based on market conditions and Federal Reserve policy.