Question

Rohan has $100 that he wants to save in a bank . Bank A offers two types of savings accounts. One has a 5% simple interest rate, and the other has a 4.8% compound interest rate. Bank B also offers two types of savings accounts. One has a 3% simple interest rate, the other has a 4% compound interest rate. Which account should Rohan choose in order to earn the most interest.

Answer 1

The most appropriate choice of account for Rohan depends on Rohan's money saving period. If he wants to save his money for less than 2 years then he should choose the Bank A's 5% simple interest account. This account gives 10$ interest in 2 years and 15$ interest in 3 years. If he wants to save his money for more than 2 years then he should choose the Bank A's 4.8% compound interest account. This account gives $9.83 interest in 2 years, $15.1 interest in 3 years, and this account gives more interest than the simple interest account in period above the third year.