Question

saniya has two savings accounts. She wants to consolidate her savings into one account. Bank 1 offers 2.3% compounded semi-annually. Bank 2 offers 2.2% compounded monthly. if Saniya puts $5,550 into the savings account for 5 years, which account would offer the most interest

Answer 1

bank 1:

$5550 for 5 years with interest 2.3% paid twice a year.

5550 x 1.023^(5 x 2) = 5550 x 1.023^10 = $6967.06 (to 2 decimal places)

(amount of money) x (multiplier - a bit like saying x (100% + 02.3%) because it's increasing the original 100% by 2.3%)^(The time the money is in the account for (years) x how many times a year interest is paid)

6967.06 -5550 = $1417.06 added during the 5 years


bank 2:

$5550 for 5 years with interest 2.2% paid 12 times a year.

5550 x 1.022^(5 x 12) = 5550 x 1.022^60 = $20480.79

20480.79 -5550 = $14930.79 added during the 5 years


comparison:

(bank 1 = + $1417.06 ) < (bank 2 = + $14930.79 )

therefore bank 2 offers the most interest.

hope this helps