High Yield Savings Calculator Schwab

Compound Interest Formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Principal Amount (P):

Annual Interest Rate (r):

Compounds Per Year (n):

Time Period (t):

years

Future Value (A):

Interest Earned:

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 because you earn interest on interest.

2. How the Calculator Works

The calculator uses the compound interest formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Where:

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

Explanation: More frequent compounding (higher n) leads to greater returns. Even small differences in interest rates can significantly impact long-term growth.

3. Importance of Compound Interest

Details: Understanding compound interest helps with retirement planning, savings goals, and debt management. Starting early maximizes the "time value" of money.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as percentage (e.g., 3.5 for 3.5%), compounds per year (12 for monthly), and time in years. Partial years (e.g., 5.5) are accepted.

5. Frequently Asked Questions (FAQ)

Q1: How does compounding frequency affect returns?
A: More frequent compounding (daily vs. monthly vs. yearly) yields slightly higher returns due to interest being calculated on more recent balances.

Q2: What's the difference between APR and APY?
A: APR doesn't account for compounding, while APY does. APY gives the true annual return when compounding is considered.

Q3: How can I maximize compound interest?
A: Start early, reinvest dividends/interest, choose higher compounding frequencies, and avoid withdrawing earnings.

Q4: Does this work for debts too?
A: Yes, compound interest works against you with credit cards and loans, causing debts to grow faster than simple interest.

Q5: What's the Rule of 72?
A: A quick way to estimate doubling time: 72 divided by the interest rate gives approximate years to double your money.