How to calculate interest earned on money market account

Q: How do you calculate interest on a money market savings account?

You can calculate the simple interest youll earn in a savings account by multiplying the account balance by the interest rate by the time period the money is in the account. Note that the interest in a savings account is money you earn, not money you pay. Heres the simple interest formula: Interest = P x R x T.

Q: How does interest accrue on a money market account?

In general, money market accounts accrue interest thats compounded daily and paid out monthly. Since interest compounds daily, your overall interest payments are based on your compounded account balance.

Q: How much interest will I earn on $1000 dollars?

How much interest can you earn on $1,000? If youre able to put away a bigger chunk of money, youll earn more interest. Save $1,000 for a year at 0.01% APY, and youll end up with $1,000.10. If you put the same $1,000 in a high-yield savings account, you could earn about $5 after a year.

What is a Money Market Account?

The basic definition of money market account (MMA): A federally insured savings account that requires you to keep a minimum balance, limits the number of monthly transactions, and for which interest rates are based on market interest rates.

Table of Contents Show

Explaining Money Market Accounts
How do you calculate interest on a money market savings account?
How does interest accrue on a money market account?
How do you calculate earned interest?
How much interest will I earn on $1000 dollars?

And because banks have some assurance that you will maintain the minimum balance, they will usually reward you with a higher interest rate than they offer for a regular savings account -- sometimes as much as 1% higher.

The main advantage of money market investing versus keeping funds in a regular savings account is the higher rate of interest.

The main disadvantage is if your balance drops below the minimum requirement, you might be charged a penalty that could offset the gains of the higher interest rate.

Also, it's important to note that money market deposit accounts are not the same as money market funds.

Money market funds are products of investment and insurance companies and are therefore not federally insured. This doesn't mean that money market funds are not safe investments; it just means they are not as safe a money market deposit accounts.

What Are Money Market Accounts Best Suited For?

If you ask an investment advisor what an MMA is best suited for, they will usually tell you they are best for parking cash in between investments. And while that might be true for people who have large sums of money to invest, it doesn't mean much to the average working family.

If you ask me what MMAs are best suited for, I will tell you that they are my preference when it comes to building and storing personal finance emergency funds. After all, MMAs ...

Are insured.
Pay a higher rate than a regular savings account.
Discourage frequent withdrawals.
And most come with a checkbook that you can write up to three checks from per month.

Perfect!

However, before you can open an MMA for building and storing personal finance emergency funds, you will likely need to begin building your fund in a regular savings account until you have saved up enough to meet the minimum deposit requirement (usually $1,000 or more) that comes with an MMA.

Fully Funded Emergency Fund?

Once you have 3-6 months of income sitting in your money market account, the next step depends on whether or not you have high-interest debt.

If you do have high interest debt, then your next step should be to begin investing in your debt.

Why? Because it simply doesn't make sense to earn 1% on your money when you can earn 18% on your money by paying off high-interest debt.

If you have managed to pay off all of your high-interest debt, since an MMA is normally considered to be a stepping stone between a regular savings account and a Certificate of Deposit (CD), the next step might be to begin making periodic purchases of certificates of deposit. But here again you will need to accumulate the minimum amount needed to purchase a CD.

This money market account (MMA) calculator lets you work out the compound interest you will earn on your money market account based on how much you deposit to start with, how long you've had the account, the interest rate on the account, and the amount you periodically deposit. They can also give you a detailed printout of the balance for your MMA and the interest you earn.

Using the MMA calculator is quite simple, just go through these directions step-by-step:

Input your initial deposit
Input your interest rate and compound frequency
Input how many years you'd like the calculator to work out your MMA interest for
Input the periodic deposit amount for the frequency you've chosen
Use the drop-down menu to select your currency (if desired)
Click on "Calculate" to get your results.

Explaining Money Market Accounts

Money market accounts (MMAs) are a form of savings deposit account offered by credit unions and banks. These accounts tend to offer higher interest rates than standard savings accounts, but they may need a higher minimum deposit and also they may require you to keep a larger balance in your account.

Unlike traditional savings accounts and certificates of deposit, money market accounts frequently come with a checkbook and/or debit card. Being able to use a checkbook or card with an account of this type makes them more flexible and offers you more options for your money than you get with many standard savings accounts.

You can invest in MMAs with confidence, because they are insured by the federal government via the Federal Deposit Insurance Corporation.

As with traditional savings accounts, MMAs don't mature at any given time; you can leave your money there as long as you want.

When you're shopping around for an MMA, you should think about how frequently each institution compounds interest. The timeframe can run from daily compounding to annual compounding, and that can make a big difference to the amount you earn. The more often interest is compounded, the more you'll make; even a small sum invested in a money market account can grow quite rapidly if you leave it there long enough.

You may also be interested in our free Certificate of Deposit Calculator

How do you calculate interest on a money market savings account?

You can calculate the simple interest you'll earn in a savings account by multiplying the account balance by the interest rate by the time period the money is in the account. Note that the interest in a savings account is money you earn, not money you pay. Here's the simple interest formula: Interest = P x R x T.

How does interest accrue on a money market account?

In general, money market accounts accrue interest that's compounded daily and paid out monthly. Since interest compounds daily, your overall interest payments are based on your compounded account balance.

How do you calculate earned interest?

To calculate the interest you will earn on your savings, use the formula a = r * t * p where a is the amount of interest you will earn, r is the interest rate your bank pays, t is the amount of time that passes each time your financial institution calculates interest, and p is your principal, or the balance in the ...

How much interest will I earn on $1000 dollars?

How much interest can you earn on $1,000? If you're able to put away a bigger chunk of money, you'll earn more interest. Save $1,000 for a year at 0.01% APY, and you'll end up with $1,000.10. If you put the same $1,000 in a high-yield savings account, you could earn about $5 after a year.