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, especially over long periods.

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 differences in rates can have large effects over time.

3. Benefits 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 (e.g., 4.5 for 4.5%), select compounding frequency, and investment period in years.

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-equivalent results.

Q2: How often do high yield accounts compound?
A: Most compound daily and pay monthly, but check with your specific bank.

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 taxes affect earnings?
A: Interest is taxable as ordinary income. Consider tax-advantaged accounts for long-term savings.

Q5: What's a good high yield rate in 2025?
A: Rates vary, but top accounts typically offer 4-5% APY as of 2025, significantly higher than national averages.