What will pay more yearly, a 5% money market account or an index fund ETF?

Lets say I start out with a $20,000 principal amount and will be depositing $1,000 monthly. I know index funds QQQQ, DIA, SPY pay about around 10%, but the Money Market Account pays 5% compounded...Does the compounding actually make the return more than 5%?

Everything Thin said is correct. Just to clarify something you said, King--yes, index funds or ETFs (SPY, etc.) will probably "pay" 10% ON AVERAGE, OVER THE LONG HAUL. But from year to year the return could be anywhere from 30% to MINUS -30%. That's why, as Thin said, if this will be a shorter term investment, it's better to go with the money market account.

BTW, if you see "APY 5.0% for the money market account, that is already taking compounding into account (for the year). Anytime you see "yield" instead of "rate," that means it's taking into account compounding. Also, stocks, funds & ETFs are compounding from year to year too. If a fund goes up 10% one year, then goes up 10% the next year, you've made more money in the second year because you had more money to start with. That is compounding.

No.

But the 5% is more-or-less guaranteed, and is predictable. The ETF will certainly provide you a much, much higher rate of return over the "long run". If you might need to take this money out in less than 5 years, you should put it in the money market; if you don't need it for 15, 20 or even 30 years, it belongs in the ETF.

You should also ALWAYS put regular contributions into something volatile if you think about it: that way you are buying more when the price is low, and less when it is high!

You are mixing up interest (5% paid yearly) from a money market vs. Total return (10%) from an ETF. The average yearly total return (share price gains + dividends + realized capital gains) of index mutual funds/etfs is 10% annually (when averaged over many years) which you do not get until you sell your ETF. The yearly "pay" or dividends from such ETFs is only around one half of one percent.

ETFs.