1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows savings to grow at an accelerating rate compared to simple interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Final amount
• \( P \) — 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 investment.

3. Importance of High-Yield Savings

Details: High-yield savings accounts typically offer significantly higher interest rates than traditional savings accounts, making compound interest more powerful for growing your savings over time.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a percentage), number of compounding periods per year (e.g., 12 for monthly), and investment duration in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. This calculator shows APY-like results.

Q2: How often do high-yield savings accounts compound?
A: Most compound daily, but some may compound monthly or quarterly. Daily compounding yields slightly better returns.

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

Q4: How does this compare to investing in stocks?
A: Savings accounts are lower risk but typically offer lower returns than stocks over long periods.

Q5: Can I add monthly contributions to this?
A: This calculator shows single-deposit growth. For regular contributions, use a future value calculator.