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 what makes high-yield savings accounts grow money faster than traditional accounts over time.

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 (higher n) leads to greater returns, as interest is calculated on increasingly larger amounts.

3. Importance 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 amount in dollars, annual interest rate as percentage (e.g., 4.5 for 4.5%), select compounding frequency, and time period in years.

5. Frequently Asked Questions (FAQ)

Q1: How often do high-yield accounts compound interest?
A: Most compound daily and pay monthly, but check with your specific financial 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, while APY does. Always compare APY when evaluating accounts.

Q4: How much can I earn with a high-yield account?
A: On $10,000 at 4% APY: ~$408 in first year, ~$4,338 after 10 years (with no additional deposits).

Q5: Are there withdrawal limits?
A: Federal Regulation D limits certain withdrawals to 6 per month, though some banks have relaxed this.