Money Market Calculator

Compound Interest 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 the Money Market Formula?

The money market calculator uses the compound interest formula to calculate the growth of an investment in a money market account. It accounts for the principal amount, interest rate, compounding frequency, and time period.

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

Explanation: The formula calculates how much your investment grows when interest is compounded at regular intervals.

3. Importance of Compound Interest

Details: Compound interest allows your investment to grow exponentially as you earn interest on both your original principal and the accumulated interest. The more frequent the compounding, the greater the returns.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage, number of compounding periods per year (e.g., 12 for monthly), and time in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (daily vs. monthly vs. annually) results in higher returns due to the "interest on interest" effect.

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 are typical interest rates for money market accounts?
A: Rates vary but are generally higher than regular savings accounts. As of 2023, rates range from 0.5% to 4% or more.

Q5: Are there withdrawal limits on money market accounts?
A: Federal regulations limit certain types of withdrawals to 6 per month, though this may vary by institution.