1. What is Monthly Compounding?

Monthly compounding means that interest is calculated and added to your principal balance each month, allowing your savings to grow faster over time. This is a key feature of high-yield savings accounts that helps maximize your returns.

2. How Does the Calculator Work?

The calculator uses the monthly compounding formula:

Where:

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

Explanation: The formula accounts for interest being compounded 12 times per year (monthly) over the investment period.

3. Benefits of High-Yield Savings

Details: High-yield savings accounts typically offer significantly higher interest rates than traditional savings accounts, with FDIC insurance protection up to $250,000 per depositor.

4. Using the Calculator

Tips: Enter your initial deposit amount, the annual interest rate (APY), and the number of years you plan to save. The calculator will show your projected balance and total interest earned.

5. Frequently Asked Questions (FAQ)

Q1: How often is interest compounded in high-yield savings accounts?
A: Most compound interest daily and credit it to your account monthly, though some may compound monthly or quarterly.

Q2: Are high-yield savings accounts safe?
A: Yes, when offered by FDIC-insured banks, they provide the same protection as traditional savings accounts.

Q3: What's the difference between APR and APY?
A: APR doesn't account for compounding, while APY does. Always compare APY when evaluating savings accounts.

Q4: Can I withdraw money anytime?
A: Yes, though some accounts may limit withdrawals to 6 per month due to federal regulations.

Q5: How do taxes affect my savings?
A: Interest earned is taxable income. You'll receive a 1099-INT form if you earn more than $10 in interest.