1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It's what makes high-yield savings accounts grow faster over time compared to simple interest accounts.

2. How the Calculator Works

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 (years)

Explanation: More frequent compounding (higher n) leads to greater returns. Even small differences in interest rates can have large effects over long periods.

3. Importance of Compounding

Details: The power of compounding allows savings to grow exponentially over time, making it crucial for long-term financial planning.

4. Using the Calculator

Tips: Enter principal in dollars, interest rate as a percentage (e.g., 4.5 for 4.5%), compounding frequency (typically 12 for monthly), 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-equivalent results.

Q2: How often do high-yield savings accounts compound?
A: Most compound daily (n=365), though some may compound monthly (n=12).

Q3: Are there limits on withdrawals?
A: High-yield savings accounts typically allow 6 withdrawals per month without penalty.

Q4: How does this compare to CDs?
A: CDs usually offer higher rates but lock up your money for a set term.

Q5: Is my money safe in these accounts?
A: Yes, when held at FDIC-insured banks (up to $250,000 per depositor).