Does compound interest work for a money market account?

Between money market account and a savings account, the former yields a higher interest rate and return. Another perk is that interest is compounded every month. Compound interest works for money market account.

Compound interest can be a complicated term in a mathematical way. The formula can be quite daunting to understand: P=C (1+r/n) nt where P=future value, C=initial deposit, r=interest rate, n=# of times per year interest is compounded, t= number of years invested. Through this formula, it does not only take into account the money deposited but also the amount of its interest. 

Another formula is used by banks: APY= (1+r/n) n-1 where: APY=annual percentage yield, r=interest rate converted to a decimal), n=number of compounding periods each year. Using this formula, a $5000 deposit in a money market account will earn a $250 per year interest. This is considered as a good investment return. 

Put simply, compound interest means “interest computed on the sum of the principal and the accrued interest.” This can be quite a catch for people who want to have a higher investment return for their money. Interest can be compounded daily, monthly or quarterly depending on the bank institution where a costumer chooses to open an account. 

Using an online interest calculator, a costumer can calculate how much a certain amount deposited will earn in a certain period of time. But the calculated amount is not absolute. It still depends on how much interest rate a bank offers. 

Aside from the higher interest rate, a money market account is one of the safest places you can keep your money. This account is FDIC insured up to $250,000. In case the bank goes bankrupt, you can still get your money. According to Freiburghouse of Money-Rates.com, “A money market account is perfect for someone who wants to preserve capital, rather than grow it rapidly (and perhaps lose it rapidly).” MMA is said to be a conservative method of investing money. 

MMA just requires a higher maintaining balance compared to a savings and checking account. Failing to meet the required maintaining balance means the depositor will be charged with a fee such as maintenance fee.

A depositor does not need to inquire in every bank to know which one offers the best rate. There are various websites now where a costumer can compare rates from different bank institutions in the United States including the most reputable banks known internationally and nationally.