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 often called "interest on interest" and can significantly boost savings growth over time.

2. How the Calculator Works

The calculator uses the compound interest formula:

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 the money is invested for (years)

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

3. Benefits of High Yield Savings

Details: High yield savings accounts typically offer 10-25x 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 in dollars, annual rate as percentage (e.g., 3.5 for 3.5%), time in years, and select compounding frequency. All values must be positive.

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 institution.

Q2: Are high yield savings accounts safe?
A: Yes, when from 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; APY does. Always compare APY when evaluating accounts.

Q4: How much can I earn with high yield savings?
A: With current rates around 4-5%, a $10,000 deposit could earn $400-$500/year versus $10-$50 in traditional savings.

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