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. Higher rates and longer time periods exponentially increase growth.

3. Importance of High Yield Savings

Details: High yield savings accounts offer significantly better returns than traditional savings accounts, helping combat inflation and grow emergency funds.

4. Using the Calculator

Tips: Compare different rates (3-5% APY is typical for high yield accounts), compounding frequencies, and time horizons to see their impact on growth.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APY and APR?
A: APY includes compound interest while APR doesn't. Always compare APY when evaluating savings accounts.

Q2: How often do high yield accounts compound?
A: Most compound daily and pay monthly, but check with each bank as policies vary.

Q3: Are high yield savings accounts safe?
A: Yes, when from FDIC-insured banks (up to $250,000 per depositor).

Q4: What's the best high yield savings account?
A: Top contenders include Ally, Marcus, Discover, Synchrony, and Capital One - compare current rates and fees.

Q5: How much should I keep in savings?
A: Typically 3-6 months of expenses in emergency savings, with excess potentially invested for higher returns.