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 over time, making it a powerful tool for wealth accumulation.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

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

Explanation: The more frequently interest is compounded, the greater the return on investment due to the "interest on interest" effect.

3. Importance of High-Yield Savings

Details: High-yield savings accounts typically offer interest rates significantly higher than traditional savings accounts, making them ideal for emergency funds or short-term savings goals while maintaining liquidity.

4. Using the Calculator

Tips: Enter the initial deposit amount, annual interest rate (APY), time period in years, and select how often interest is compounded. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APY and APR?
A: APY (Annual Percentage Yield) includes compound interest effects, while APR (Annual Percentage Rate) does not. APY gives a more accurate picture of actual earnings.

Q2: How often do high-yield accounts compound interest?
A: Most compound daily and pay monthly, but this can vary by institution.

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 the stock market?
A: Savings accounts offer lower returns but are much safer and more liquid than stocks.

Q5: Are there tax implications?
A: Yes, interest earned is considered taxable income by the IRS.