Simple vs. compound interest
With simple interest, you earn interest only on your principal. With compound interest, interest is added to your balance and itself earns interest — so the gap widens as the term grows. Most US high-yield savings accounts compound daily or monthly and advertise the result as APY (annual percentage yield).
APY vs. APR
APY includes the effect of compounding; APR does not. If two accounts show the same number but one is APY and one is APR, the APY account pays slightly less than it appears relative to the APR one. When comparing savings accounts, always compare APY to APY.
FAQ
Is savings interest taxable?
Yes — interest from savings accounts and CDs is taxed as ordinary income at your marginal rate. Interest inside tax-advantaged accounts like IRAs grows tax-deferred or tax-free.
CD or high-yield savings account?
CDs lock your rate for a fixed term with early-withdrawal penalties; high-yield savings accounts keep money accessible but rates can change anytime. If you won't need the money before maturity and rates are falling, a CD locks in today's yield.
Are my deposits insured?
FDIC insurance covers up to $250,000 per depositor, per bank, per ownership category (NCUA provides the same for credit unions). Spread larger balances across banks to stay fully covered.
Worked example
Deposit $500 every month for 3 years at 4.0% APY with monthly compounding and you will have contributed $18,000, earning about $1,154 in interest before tax. Each deposit only earns interest for the months it stays in the account, which is why the effective return on a recurring deposit is roughly half the headline rate over the period.
FAQ
Is savings interest taxable in the US?
Yes — interest from savings accounts and CDs is taxed as ordinary income at your marginal federal rate (plus state tax where applicable). Banks report it on Form 1099-INT once it exceeds $10. This calculator shows pre-tax interest, so your after-tax result depends on your bracket.