1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It causes wealth to grow faster than simple interest, especially in high-yield checking accounts where interest compounds frequently.

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 compounding periods per year
• \( t \) — Time the money is invested for (years)

Explanation: More frequent compounding (higher n) leads to greater returns. High-yield accounts often compound daily (n=365).

3. Importance of High-Yield Accounts

Details: High-yield checking accounts offer significantly higher interest rates than traditional accounts, making compound interest effects more substantial for your savings.

4. Using the Calculator

Tips: Enter principal in dollars, interest rate as percentage (e.g., 2.5 for 2.5%), compounding frequency (12 for monthly, 365 for daily), and time in years.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR is the annual rate without compounding, while APY includes compounding effects. This calculator shows APY results.

Q2: How often do high-yield accounts compound?
A: Most compound daily (n=365), but check with your specific bank as policies vary.

Q3: Are there limits on high-yield accounts?
A: Some have balance caps or require minimum deposits/activity to earn the high rate.

Q4: How does this compare to CDs or money markets?
A: High-yield checking offers better liquidity than CDs but may have lower rates than some money market accounts.

Q5: Are these accounts FDIC insured?
A: Yes, when offered by FDIC-member banks, up to $250,000 per depositor.