1. What is a Money Market Account?

A money market account is a type of savings account that typically offers higher interest rates than regular savings accounts in exchange for higher balance requirements. The interest is compounded daily and credited monthly.

2. How the Calculation Works

The calculator uses the daily compounding formula:

Where:

• \( A \) — Final amount after 6 months ($)
• \( P \) — Principal amount ($)
• \( r \) — Annual interest rate (as decimal, e.g., 0.036 for 3.6%)
• 365 — Number of compounding periods per year (daily)
• 0.5 — Time period in years (6 months)

Explanation: The formula accounts for daily compounding of interest over a 6-month period (0.5 years).

3. Understanding Daily Compounding

Details: Daily compounding means interest is calculated each day based on the current balance (including previously earned interest). This results in slightly higher returns than simple interest or less frequent compounding.

4. Using the Calculator

Tips: Enter your principal amount in dollars and the annual interest rate (APY) as a percentage. For example, for $10,000 at 3.6% APY, enter 10000 and 3.6.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. Money market accounts typically advertise APY.

Q2: Are money market accounts FDIC insured?
A: Yes, money market accounts at FDIC-insured banks are protected up to $250,000 per depositor.

Q3: How does this compare to a CD?
A: CDs typically offer fixed rates for specific terms but have early withdrawal penalties. Money markets offer more liquidity.

Q4: Are there fees or minimum balances?
A: Many money market accounts require minimum balances (often $1,000-$25,000) and may charge fees if balances fall below requirements.

Q5: How often is interest paid?
A: While interest is calculated daily, it's typically paid out monthly to your account.