Calculator for Money Market Account

Money Market Account Formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Principal Amount (P):

Annual Interest Rate (r):

Compounding Periods per Year (n):

Time in Years (t):

Final Amount (A):

Interest Earned:

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1. What is a Money Market Account?

A money market account is a type of savings account that typically earns higher interest rates than regular savings accounts, often with check-writing privileges. The interest compounds over time, meaning you earn interest on both your principal and previously earned interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Where:

$ A $ — Final amount
$ P $ — Principal amount (initial investment)
$ r $ — Annual interest rate (in decimal)
$ n $ — Number of compounding periods per year
$ t $ — Time the money is invested for (in years)

Explanation: The formula calculates how your money grows with compound interest, accounting for how often the interest is compounded (daily, monthly, quarterly, etc.).

3. Importance of Compound Interest

Details: Compound interest is powerful because it allows your savings to grow exponentially over time. The more frequently interest is compounded, the faster your money grows. Money market accounts often compound interest daily or monthly.

4. Using the Calculator

Tips: Enter your initial deposit, annual interest rate (as a percentage), how often interest is compounded per year (12 for monthly, 365 for daily), and the number of years you plan to keep the money invested.

5. Frequently Asked Questions (FAQ)

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

Q2: How often do money market accounts compound interest?
A: Most compound interest daily, but some may compound monthly or quarterly. Check with your financial institution.

Q3: Are money market accounts FDIC insured?
A: Yes, money market accounts at FDIC-insured banks are protected up to $250,000 per depositor.

Q4: What's the difference between money market accounts and money market funds?
A: Money market accounts are bank deposits (FDIC insured), while money market funds are investment products (not FDIC insured).

Q5: Are there withdrawal limits on money market accounts?
A: Federal regulations may limit certain types of withdrawals to 6 per month, though this was suspended during COVID-19.