1. What is Monthly Interest?

Monthly interest is the amount of interest earned on a checking account balance over one month. It's calculated based on the principal amount and the annual interest rate.

2. How Does the Calculator Work?

The calculator uses the monthly interest formula:

Where:

• \( P \) — Principal amount in dollars
• \( r \) — Annual interest rate in decimal form (e.g., 0.05 for 5%)
• 12 — Number of months in a year

Explanation: The formula divides the annual interest by 12 to get the monthly portion.

3. Importance of Monthly Interest Calculation

Details: Calculating monthly interest helps account holders understand their potential earnings and compare different checking account options.

4. Using the Calculator

Tips: Enter the principal amount in dollars and the annual interest rate as a decimal (e.g., 0.03 for 3%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 12 in the formula?
A: The division by 12 converts the annual interest rate to a monthly rate since there are 12 months in a year.

Q2: How do I convert a percentage rate to decimal?
A: Divide the percentage by 100 (e.g., 4.5% becomes 0.045).

Q3: Do all checking accounts pay interest?
A: No, many standard checking accounts don't pay interest. Interest-bearing checking accounts typically offer lower rates than savings accounts.

Q4: Is the interest compounded monthly?
A: This calculator shows simple monthly interest. For compound interest, a different formula would be needed.

Q5: Are there fees that might offset the interest earned?
A: Yes, some accounts have monthly maintenance fees that could reduce or eliminate the benefit of interest earnings.