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, where interest is calculated only on the principal amount.

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: The more frequently interest is compounded, the greater the return, as interest is earned on interest more often.

3. Importance of High-Yield Savings

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

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate as a percentage, time in years, and select compounding frequency. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How often do high-yield accounts compound?
A: Most compound daily and pay monthly, but check with your specific bank for their compounding schedule.

Q2: Are high-yield savings accounts safe?
A: Yes, when offered by FDIC-insured banks (up to $250,000 per depositor).

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

Q4: How much can I earn with a high-yield account?
A: Rates vary but typically 10-20x higher than traditional savings accounts (e.g., 4-5% APY vs. 0.01-0.1%).

Q5: Are there withdrawal limits?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended during COVID.