This free online Money Market Account Calculator will calculate the compound interest earnings on money market deposit accounts given the interest rate, length of time, initial deposit, and periodic deposit amount -- plus display a year-to-year investment growth chart.
If you don't know the answer to "What is a money market account?", or you're not sure what purpose they are meant to serve, or you don't know how they differ from money market funds, it may be well worth your while to read the following definition and explanations before using the money market account calculator.
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. 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.
If you ask an investment advisor what MMAs are 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, they pay a higher rate than a regular savings account, they 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 a MMA for the purpose of 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 MMAs.
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 MMAs are 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.
With that, let's use the Money Market Account Calculator to calculate the amount of interest you might earn from investing in money market deposit accounts.
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Starting money market account balance: The current balance of your MMA, or the initial deposit that is not part of the periodic deposits. This field is a required field since MMAs require a minimum deposit (usually $1,000 or more).
Money market account interest rate: The annual interest rate you expect the MMA to earn. Note that money market interest rates are based on current market rates, so please enter accordingly. Enter as a percentage (for .02, enter 2%).
Periodic deposit interval: The number of selected periods (month or years) you would like the money market account calculator to calculate interest for. Enter integers only (no decimal points). If you would like to calculate interest for partial years, select Months and enter the total months (example: for 5-1/2 years, enter 66 months).
Periodic deposit amount: The periodic deposit amount for the selected deposit interval (weekly, bi-weekly, monthly, etc.).
Future value of MMA: This how much your MMA will have grown to based on the interest rate you entered, your periodic deposits, and the number of entered months or years.
Total MMA deposits: This is the total of your beginning deposit or balance, plus all periodic deposits for the entered number of months or years.
Interest earned on MMA: This is the total interest you will earn on your MMA for the entered number of months or years. Note that the money market account calculator's compound interest calculations are based on monthly compounding and assumes all periodic deposits are made at the end of each month. Most money market accounts calculate interest on a daily basis, but the interest earnings aren't added to your account until the end of the month. Therefore, the result in this field may be slightly lower than actual interest earnings if periodic deposits are made mid-month.