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 interest rates can significantly impact long-term growth.

3. Importance of High Yield Savings

Details: High yield savings accounts typically offer 10-25x higher interest than traditional savings accounts, making them essential tools for emergency funds and short-term savings goals.

4. Using the Calculator

Tips: Compare different rates (3-5% APY is common for high yield accounts). Experiment with different compounding frequencies (daily, monthly, quarterly).

5. Frequently Asked Questions (FAQ)

Q1: How often do high yield accounts compound?
A: Most compound interest daily and pay monthly, but check with each bank as policies vary.

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 APY and APR?
A: APY includes compounding effects while APR doesn't. Always compare APY when evaluating accounts.

Q4: How much can I earn with $10,000 at 4% APY?
A: After 5 years with monthly compounding: ≈$12,210 (≈$2,210 interest).

Q5: Are there drawbacks to high yield accounts?
A: May have withdrawal limits (Regulation D) and often require online banking (no physical branches).