Question

An online bank is offering to pay 0.25 % interest per month on deposits. Your local bank offers to pay 0.75 % interest quarterly (every 3 months). Which is the higher interest rate?

Answer 1

Both have the same interest rate which is 3%.

What is interest?

• In finance and economics, interest is the payment of an amount above the repayment of the principal sum by a borrower or deposit-taking financial institution to a lender or depositor at a specific rate by a borrower or depositor.
• It differs from a fee that the borrower may pay to the lender or a third party.

To find the higher interest rate:

Given that,

• Interest rate per month = 0.25%
• Interest rate per quarter = 0.75%

If we calculate the annual interest for monthly and quarterly rates, it will be:

Monthly

• No. of months in a year = 12
• Monthly rate = 0.25%

So,

• Annual Interest = 0.25 × 12
• = 3%

Quarterly

• No. of quarters in a year = 4
• Quarterly rate = 0.75%

So,

• Annual Interest = 0.75 × 4
• = 3%

Therefore, both have the same interest rate which is 3%.

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