Money Market Vs CD Calculator

Comparison Formulas:

\[ MM\_FV = P \times (1 + r\_mm / c)^{(c \times t)} \] \[ CD\_FV = P \times (1 + r\_cd / c)^{(c \times t)} \]

Principal Amount (P):

Money Market Rate (r_mm):

decimal

CD Rate (r_cd):

decimal

Compounding Periods per Year (c):

Time Period (t):

years

Money Market Future Value (MM_FV):

CD Future Value (CD_FV):

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1. What is Money Market vs CD Comparison?

This calculator compares the future value of investments in money market accounts versus certificates of deposit (CDs) using compound interest formulas. It helps investors decide which option might yield better returns based on current rates.

2. How Does the Calculator Work?

The calculator uses these compound interest formulas:

\[ MM\_FV = P \times (1 + r\_mm / c)^{(c \times t)} \] \[ CD\_FV = P \times (1 + r\_cd / c)^{(c \times t)} \]

Where:

\( P \) — Principal investment amount
\( r\_mm \) — Money market annual interest rate (decimal)
\( r\_cd \) — CD annual interest rate (decimal)
\( c \) — Number of compounding periods per year
\( t \) — Time in years

Explanation: The formulas calculate how much your investment will grow in each account type based on their respective interest rates and compounding frequency.

3. Importance of Comparison

Details: Comparing potential returns helps investors make informed decisions between the liquidity of money market accounts and the typically higher rates (but lower liquidity) of CDs.

4. Using the Calculator

Tips: Enter the principal amount, interest rates for both account types (as decimals), compounding frequency, and time period. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between money market and CD accounts?
A: Money market accounts offer more liquidity with check-writing privileges, while CDs typically offer higher rates but lock up your money for a fixed term.

Q2: How often do these accounts compound interest?
A: This varies by institution but is typically daily for money markets and monthly or quarterly for CDs.

Q3: Are the rates fixed or variable?
A: CD rates are fixed for the term, while money market rates can fluctuate with market conditions.

Q4: What about early withdrawal penalties?
A: CDs usually have penalties for early withdrawal, while money markets allow withdrawals (though may have transaction limits).

Q5: Which is better for short-term vs long-term?
A: Money markets are better for short-term needs, while CDs may be better for longer-term savings when you can lock in higher rates.