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.