Understanding the use of the money market calculator
A money market account is an efficient way to stash your cash instead of just going for a conventional savings bank account. Money market accounts or MMA’s have a number of advantages over normal savings bank accounts. The interest rates itself are very high on these accounts. The reason for this is the purpose that your money is used for, or in other words the investments that are made with the money.
Over the past decade, the international economy has taken a serious beating. A lot of multinational organizations which used to give out huge benefits in the form of a 401K plan or a conventional pension plan are no longer making sufficient contributions to the same. In many cases they have totally stopped making contributions and have scrapped such programs with a view to reduce costs. And in such a scenario, a lot of individuals have started opting for different other schemes to keep the money flowing even after they retire. A lot of people go for normal savings accounts, or bank bonds or even shares. But the majority is now going for money market accounts which promise more returns for a lesser risk exposure.
A money market account is basically just a savings account with a much higher potential rate of return. And the reason for this is that you will have to deposit a certain minimum amount which can range anywhere over a $100000 and also you can withdraw only around 3 times per month from the account. Now these particulars may vary depending on the bank and type of account, but it is just a rough idea of what a money market account means. The main reason for this is the use that your money is put to. There will be designated investment managers who will manage your funds and allocate them to certain investments. The allocation will be based on the mix of risk exposure that you have asked for. The more the risk you go for, the higher the possible rate of return. But the higher the rate of return is, the lesser your least returns will be. In money market accounts, the more the money you deposit, the more your rate of return will be. One could actually say that money market accounts are disproportionately skewed in the favor of the rich.
The banks which take your money in a money market account will usually deposit it in securities belonging to both private and government entities. And you will be paid the returns based on the prevailing minimum rate of return that was promised and the percentage of the profits that were promised. There is a simple way to calculate the rate of return that can be expected from your money market account; this is called the money market calculator.
You need to know some basic information like the initial deposit amount, the promised rate of return, the duration of the account, compounding interest, and annual percentage yield. With these pieces of information, one can make a calculation of what the expected returns from a money market account could be. Hence by using the money market calculator, one can make a decent analysis of what to expect after a couple of years of having stayed invested. It can give you an idea and thus help you plan your future financial investments or purchases based on the returns that can be expected.
