How is interest compounded on a money market account?
Q. How is the interest compounded or calculated on a money market account? If I open a money market account with $10,000 at a rate of 4.88% what would be the gain?
A. If you open a money market account at 4.88%, one year from today you would have earned $499 and there would be $10,499 in your money market account.
This is assuming that you don't make any withdrawals or additional deposits.
The great thing about a money market account is that you can add to it any time you want -- there are no minimums. So if you have a spare $25 or $50 sometime, just throw it in. It will add up.
There are several ways to calculate and pay interest on a money market accounts, CDs and savings accounts.
But it really doesn't make much difference whether your interest is compounded daily, monthly or quarterly, and your bank will probably offer only one option.
If interest on your $10,000 was:
- Compounded quarterly you'd have $10,497 after one year.
- Compounded monthly you'd have $10,499.
- Compounded daily you'd have $10,500.
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