MMA Compound Interest: The Basic Formula
Most MMAs compound daily and credit monthly. The formula is: Balance x (1 + APR/365)^(365 x Years). At 4.65% APR on $20,000 for 1 year: $20,000 x (1 + 0.0465/365)^365 = $20,000 x 1.04759 = $20,951.80. Interest earned: $951.80. Note: APY includes compounding, APR does not.
MMA daily and monthly interest accrual at 4.65% APY
| Balance | APY | Daily Interest | Monthly Credit | Annual Total |
|---|---|---|---|---|
| $10,000 | 4.65% | $1.27 | $38.87 | $465 |
| $20,000 | 4.65% | $2.55 | $77.74 | $930 |
| $30,000 | 4.65% | $3.82 | $116.61 | $1,395 |
| $50,000 | 4.65% | $6.37 | $194.35 | $2,325 |
How Tiered Rates Affect Your Actual Earnings
Tiered MMAs apply different rates to different balance bands. Unlike a tax bracket the tiers typically apply to the marginal balance in each band not your entire balance. Example: 3.00% on first $10,000 and 4.75% on amounts above $10,000. On $25,000: ($10,000 x 3.00%) + ($15,000 x 4.75%) = $300 + $712.50 = $1,012.50 total annual interest.
Tier 1: $0–$10,000 at 3.00% = $300/year. Tier 2: $10,001–$25,000 at 4.75% = $712.50/year. Total: $1,012.50. Effective blended rate: $1,012.50/$25,000 = 4.05%. Compare to flat-rate MMA at 4.65%: $1,162.50/year — better by $150.
MMA interest structure comparison on $25,000 balance
| Structure | Tier 1 | Tier 2 | On $25K: Interest | Effective Rate |
|---|---|---|---|---|
| Tiered MMA (example) | 3.00% on first $10K | 4.75% on $10K+ | $1,012.50 | 4.05% |
| Flat-rate online MMA | 4.65% on all | 4.65% on all | $1,162.50 | 4.65% |
| National avg MMA | 0.64% on all | 0.64% on all | $160 | 0.64% |
Minimum Balance and Fee Effects on Net Yield
MMAs with monthly fees that are waived only above a minimum balance effectively reduce your net yield if you dip below the threshold. A $15/month fee ($180/year) on a $10,000 balance eliminates most or all interest earned at low rates — confirming the importance of choosing fee-free online MMAs.
- Daily compounding: most MMAs accrue interest daily and credit monthly
- Tiered rates: apply marginal rates to each balance band not your entire balance
- Fee impact: $180/year fee on $10K balance at 4.65% reduces effective yield to 2.85%
- Rate changes: variable MMA APY can change any time affecting your annualized return
Calculate Your Exact MMA Earnings
Enter your balance, APY, and any monthly fees to see your true effective annual yield.