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 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 leads to higher returns. For example, monthly compounding yields more than annual compounding at the same rate.

3. Importance of High Yield Savings

Details: High yield savings accounts offer significantly higher interest rates than traditional savings accounts, helping your money grow faster while remaining FDIC-insured and liquid.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as percentage (e.g., 3.5 for 3.5%), select compounding frequency, and enter time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

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

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

Q3: What's a good high yield savings rate?
A: As of 2023, top accounts offer 4-5% APY, significantly higher than traditional savings accounts.

Q4: How does this compare to investing?
A: Savings accounts are lower risk but typically offer lower returns than stocks over long periods.

Q5: Are there limits on withdrawals?
A: Federal Regulation D previously limited withdrawals to 6 per month, though this was suspended in 2020.