1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows savings to grow faster compared to simple interest, especially over long periods.

2. How Does the Calculator Work?

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. The formula accounts for this exponential growth.

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.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as percentage, select compounding frequency, and time in years. All values must be positive.

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 results.

Q2: How often do high yield accounts compound?
A: Most compound daily, but check with your specific bank as policies vary.

Q3: Are there limits on withdrawals?
A: Federal Regulation D limits certain withdrawals to 6 per month, though this was suspended during COVID.

Q4: How do I choose the best account?
A: Compare rates, fees, minimum balances, and customer service. Online banks often offer higher rates.

Q5: Is my money safe in these accounts?
A: Yes, if the bank is FDIC-insured (up to $250,000 per depositor).