19. 2: Simple and Compound Interests
A family has $1,000 to invest and is considering two options: investing in government bonds that
offer 2% simple interest, or investing in a savings account at a bank, which charges a $20 fee to
open an account and pays 2% compound interest. Both options pay interest annually.
Here are two tables showing what they would earn in the first couple of years if they do not invest
additional amounts or withdraw any money.
Bonds
Savings Account
years of investment
amount in dollars
years of investment
amount in dollars
0
$1,000
0
$980
1
$1,020
1
$999. 60
I
2
$1,040
2
$1,019. 59
