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Monthly Return Formula:
The monthly return measures the average monthly percentage gain on an investment in a high-yield savings account, accounting for compound interest over time. It helps compare different savings options and understand the monthly benefit of your investment.
The calculator uses the monthly return formula:
Where:
Explanation: The formula calculates the total compounded return, then converts it to an equivalent monthly rate based on the investment period.
Details: Understanding monthly returns helps with budgeting, comparing different savings products, and projecting future savings growth. It's particularly useful for high-yield accounts where compounding significantly affects earnings.
Tips: Enter principal in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), and time period in years. All values must be positive numbers.
Q1: How does compounding affect monthly returns?
A: Compounding increases returns over time as you earn interest on previously earned interest. The more frequent the compounding, the higher the effective return.
Q2: What's a good monthly return for savings accounts?
A: As of 2023, top high-yield savings accounts offer 0.3-0.5% monthly returns (3.5-6% APY). Returns vary with market conditions.
Q3: How does this differ from simple monthly interest?
A: Simple interest doesn't account for compounding. This calculation shows the effective monthly rate including compounding effects over time.
Q4: Can I use this for other investments?
A: This formula works best for fixed-rate, compound interest products like savings accounts. Other investments may have variable returns.
Q5: Why does the time period affect monthly return?
A: Longer periods allow more compounding, which increases the effective monthly return when annualized.