Your estimated monthly interest earned will be: $0.00Based on your inputs.
Understanding Money Market Account Interest
Money market accounts (MMAs) are a type of savings account that typically offers higher interest rates than traditional savings accounts. They are often FDIC-insured up to the standard limits, providing safety for your funds while allowing them to grow. This calculator helps you estimate the monthly interest earned on your money market deposit, considering your initial deposit, any regular contributions, and the prevailing annual interest rate.
How the Calculation Works
The calculator estimates your monthly interest earnings. It takes into account:
Initial Deposit: The principal amount you start with.
Annual Interest Rate: The yearly percentage rate offered by the money market account.
Monthly Deposits: Any additional funds you plan to deposit each month.
Number of Months: The duration for which you want to calculate the interest.
The core of the calculation involves determining the monthly interest rate and then applying it to your balance. For simplicity, this calculator focuses on the *average* monthly interest earned over the period. A more complex, exact calculation would involve daily compounding or specific day-count conventions.
The formula used is an approximation to derive the average monthly interest:
The total interest earned over the period is then estimated based on the initial principal, monthly deposits, and compounding effect. This calculator provides a simplified estimate of the interest earned specifically in the *last month* of the period to give you a sense of your earning potential as your balance grows.
To provide a more precise calculation of the interest earned in the final month, we first calculate the future value of the investment considering both the initial principal and the series of monthly deposits, and then derive the interest from that.
The future value (FV) of an ordinary annuity is calculated as:
$FV = P \times \frac{((1 + r)^n – 1)}{r}$
Where:
– $P$ is the periodic payment (monthly deposit)
– $r$ is the periodic interest rate (monthly interest rate)
– $n$ is the number of periods (number of months)
The total amount at the end of the period is approximately:
$Total Amount \approx (Initial Deposit \times (1 + Monthly Interest Rate)^{NumberOfMonths}) + FV$
Then, the interest earned in the final month is approximated by taking the total amount after 'n' months, subtracting the total amount after 'n-1' months, and then calculating the interest earned on that difference.
A more direct way to estimate the monthly interest is by calculating the total interest earned and dividing by the number of months, or by calculating the balance at the end and subtracting the total principal contributions.
For this calculator's output, we'll focus on the estimated interest earned in the *final month*, which better reflects the earning potential as the balance grows.
Simplified Monthly Interest Calculation for Display:
We approximate the interest earned in the *last month* by calculating the total balance at the end of the term and then finding the interest earned on that balance for one month.
Let $B_n$ be the balance after $n$ months.
$B_n \approx Initial Deposit \times (1 + \frac{Annual Rate}{12})^n + Monthly Deposits \times \frac{((1 + \frac{Annual Rate}{12})^n – 1)}{(\frac{Annual Rate}{12})}$
The interest earned in the last month (month $n$) is approximately:
$(B_n – B_{n-1}) \times (\frac{Annual Rate}{12})$
However, a simpler and often desired metric is the *average* monthly interest. A pragmatic approach for this calculator is to:
1. Calculate the total interest earned over the period.
2. Divide the total interest by the number of months.
Total Contributions = Initial Deposit + (Monthly Deposits * Number of Months)
Total Balance (approximate end value using a future value of annuity formula for deposits and compounding for initial principal)
Monthly Interest for Display = (Total Balance – Total Contributions) / Number of Months
When to Use This Calculator
This calculator is useful for:
Planning Savings Goals: Estimate how much interest you might earn by saving a certain amount regularly in a money market account.
Comparing Accounts: Compare the potential earnings from different money market accounts with varying interest rates.
Understanding Growth: Visualize how your money can grow over time with consistent deposits and compounding interest.
Financial Forecasting: Incorporate potential money market earnings into your overall budget or financial plan.
Remember that interest rates on money market accounts can fluctuate. This calculator provides an estimate based on the current rate you input. Always consult with your financial institution for the most accurate and up-to-date information regarding your account's performance.
function calculateMoneyMarketInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var monthlyDeposits = parseFloat(document.getElementById("monthlyDeposits").value);
var numberOfMonths = parseInt(document.getElementById("numberOfMonths").value);
var resultDiv = document.getElementById("result");
// Input validation
if (isNaN(principal) || principal < 0) {
resultDiv.innerHTML = "Please enter a valid initial deposit amount.";
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
resultDiv.innerHTML = "Please enter a valid annual interest rate.";
return;
}
if (isNaN(monthlyDeposits) || monthlyDeposits < 0) {
resultDiv.innerHTML = "Please enter a valid monthly deposit amount.";
return;
}
if (isNaN(numberOfMonths) || numberOfMonths <= 0) {
resultDiv.innerHTML = "Please enter a valid number of months (greater than 0).";
return;
}
var monthlyInterestRate = annualInterestRate / 100 / 12;
var totalInterestEarned = 0;
var currentBalance = principal;
var totalContributions = principal;
// Simulate month by month for a more accurate estimate of interest in the last month
var balanceAfterNMinus1Months = principal;
for (var i = 1; i <= numberOfMonths; i++) {
var interestThisMonth = currentBalance * monthlyInterestRate;
// If it's the last month, we'll use this interest
if (i === numberOfMonths) {
totalInterestEarned = interestThisMonth;
}
currentBalance += interestThisMonth + monthlyDeposits;
totalContributions += monthlyDeposits;
// Store balance for the second to last month if needed for a more precise diff calculation
if (i === numberOfMonths – 1) {
balanceAfterNMinus1Months = currentBalance;
}
}
// If number of months is 1, totalInterestEarned will be the interest from the initial principal + monthly deposit
if (numberOfMonths === 1) {
totalInterestEarned = (principal * monthlyInterestRate) + (monthlyDeposits * monthlyInterestRate);
}
// A more robust approach for average monthly interest might be:
// totalContributions = principal + (monthlyDeposits * numberOfMonths);
// finalBalance = principal * Math.pow(1 + monthlyInterestRate, numberOfMonths) + monthlyDeposits * (Math.pow(1 + monthlyInterestRate, numberOfMonths) – 1) / monthlyInterestRate;
// totalInterestEarned = finalBalance – totalContributions;
// averageMonthlyInterest = totalInterestEarned / numberOfMonths;
// Displaying the calculated interest for the *last month* as it often grows
var displayInterest = totalInterestEarned;
if (isNaN(displayInterest) || displayInterest < 0) {
displayInterest = 0;
}
resultDiv.innerHTML = "Your estimated monthly interest earned will be: $" + displayInterest.toFixed(2) + "Based on the interest earned in the final month of your period.";
}