1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows savings to grow at an accelerating rate over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( Principal \) — Initial amount invested
• \( Rate \) — Annual interest rate (in decimal form)
• \( Years \) — Time period of investment

Explanation: The formula accounts for exponential growth of money through periodic compounding of interest.

3. Importance of High-Yield Savings

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

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as a decimal (e.g., 0.05 for 5%), and years as a number (can include fractions like 2.5 for 2½ years). All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How often is interest compounded in high-yield accounts?
A: Most compound interest daily and pay it monthly, though terms vary by institution.

Q2: Are high-yield savings accounts safe?
A: Yes, when offered by 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. This calculator uses APY.

Q4: How much can I earn with high-yield savings?
A: With current rates around 4-5%, $10,000 would earn about $400-500 in a year.

Q5: Are there limitations to this calculator?
A: It assumes constant rate and no additional deposits/withdrawals. Real-world results may vary slightly.