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, as you earn "interest on interest."

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 compounding periods per year
• \( t \) — Time the money is invested for (years)

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

3. Benefits of High Yield Savings

Details: High yield savings accounts typically offer 10-25x higher interest than traditional savings accounts, with FDIC insurance protection up to $250,000.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as percentage (e.g., 4.5 for 4.5%), select compounding frequency, and investment period in years.

5. Frequently Asked Questions (FAQ)

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

Q2: Are there withdrawal limits?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended during COVID.

Q3: How does this compare to CDs?
A: CDs typically offer slightly higher rates but lock up your money for a set term.

Q4: What's the difference between APY and APR?
A: APY includes compounding effects while APR does not. Always compare APYs.

Q5: Are high yield savings accounts safe?
A: Yes, when from FDIC-insured banks (up to $250,000 per depositor, per bank).