What is interest when it says “Compounded and applied monthly?
I am looking into opening a money market account. I haven’t spoken with the bank yet directly because I am deployed and in Iraq. It states in the description of the account that “Interest is compounded weekly and applied monthly”.
Does this mean, say I invest 10,000, at 3% interest my first month would generate 300, and my second month would generate 303, thus at the end of two months I would have 10,603?
I keep searching for calculators online, and every calculator I can find only applies interest yearly, so at the end of 12 months the calculator is showing an total savings of 10,300 for a 3% interest.
My confusion comes in when I notice that all over the web all I am able t find is interest applied yearly, but the wording on my banks money market account hints that it is in fact, applied monthly.
Can anyone explain this process to me, and if there is a calculator on the web that would be useful, please point me to it?
Thanks!
There’s not a huge difference between compounding weekly and monthly, unless of course, you’re dealing with big numbers. You can see the difference here…
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
Also, if you’re interested in the formula for compound interest along with some good examples, please review the information at this website…
http://hotmath.com/hotmath_help/algebra1/compound_interest.html
It’s an exponential formula with the number of compounding periods as part of the exponent. With regards to your question, compounded and applied monthly is the same as compounded monthly.
…
SIMS 141 – Overview of How Search Engines Work