1. What is the Money Market Yield Formula?

The compound interest formula calculates the growth of money market investments by accounting for periodic compounding of interest. It's particularly relevant for Canadian money market funds which typically offer higher yields than regular savings accounts.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Final amount (CAD)
• \( P \) — Principal investment (CAD)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Compounding periods per year
• \( t \) — Time in years

Explanation: The formula accounts for the effect of compounding, where interest is earned on previously accumulated interest.

3. Importance of Compound Interest

Details: Understanding compound growth is essential for comparing money market products, planning savings goals, and maximizing returns on short-term investments.

4. Using the Calculator

Tips: Enter principal in CAD, annual rate as percentage (e.g., 4.5 for 4.5%), select compounding frequency, and investment period in years.

5. Frequently Asked Questions (FAQ)

Q1: What's typical for Canadian money market rates?
A: Rates vary but typically range from 2-5% APY, higher than regular savings accounts but with similar liquidity.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (e.g., daily vs. annually) yields slightly higher returns due to the compounding effect.

Q3: Are money market funds risk-free?
A: While low-risk, they're not guaranteed. Canadian money market funds typically invest in high-quality short-term debt.

Q4: How are taxes handled?
A: Interest is taxable as income in Canada. Consider tax-advantaged accounts like TFSA for money market investments.

Q5: What's the difference between APY and APR?
A: APY includes compounding effects while APR doesn't. This calculator uses APY-type calculations.