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Daily Compounding Formula:
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Daily compounding means that interest is calculated and added to the principal balance every day. This results in earning "interest on interest" more frequently compared to monthly or annual compounding, leading to higher overall returns.
The calculator uses the daily compounding formula:
Where:
Explanation: The formula accounts for the exponential growth of money when interest is compounded daily, which means interest is calculated on the principal plus previously earned interest every single day.
Details: Daily compounding maximizes returns by applying interest more frequently than monthly or annual compounding. Over time, this can significantly increase your investment growth due to the power of compound interest.
Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 3.5 for 3.5%), and time period in years. All values must be positive numbers.
Q1: How does daily compounding compare to monthly compounding?
A: Daily compounding typically yields slightly higher returns than monthly compounding because interest is calculated and added more frequently.
Q2: Are high-yield savings accounts FDIC insured?
A: Most high-yield savings accounts at FDIC-member banks are insured up to $250,000 per depositor, per account ownership type.
Q3: What's a typical APY for high-yield savings accounts?
A: As of 2023, rates typically range from 3.5% to 5% APY, though this varies with market conditions.
Q4: How often can I withdraw from a high-yield savings account?
A: Federal regulations typically limit certain types of withdrawals to 6 per month, though this doesn't apply to all transactions.
Q5: Is there a minimum balance required?
A: Requirements vary by bank - some have no minimum, while others may require $100-$25,000 to earn the highest rates.