1. What is the Future Value Formula?

The Future Value (FV) formula calculates how much a present sum of money will grow to in the future when earning compound interest. It's essential for understanding how savings can grow over time in high-yield accounts.

2. How Does the Calculator Work?

The calculator uses the Future Value formula:

Where:

• \( FV \) — Future Value
• \( PV \) — Present Value (initial amount)
• \( r \) — Annual interest rate (in decimal form)
• \( n \) — Number of compounding periods per year
• \( t \) — Time the money is invested for (in years)

Explanation: The formula accounts for compound interest, where interest is earned on both the initial principal and the accumulated interest from previous periods.

3. Importance of Future Value Calculation

Details: Understanding future value helps in financial planning, comparing investment options, and setting realistic savings goals. It demonstrates the power of compound interest over time.

4. Using the Calculator

Tips: Enter the present value in dollars, annual interest rate as a decimal (e.g., 5% = 0.05), number of compounding periods per year (e.g., 12 for monthly), and time in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.

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

Q3: Why does compounding frequency matter?
A: More frequent compounding leads to higher returns because interest is calculated on a growing balance more often.

Q4: What's a typical APY for high-yield savings?
A: As of 2023, rates range from 3-5% APY, but this varies with market conditions.

Q5: Are there limits on withdrawals?
A: Federal Regulation D limits certain types of withdrawals to 6 per month, though this was suspended during COVID.