Is it better to have a slightly higher rate or have interest compounded more often?

Financial Report Worksheet

 

Directions: Complete the financial report worksheet to help you with your calculations to create the APA report.

1. Go to your financial institution’s website or a local financial institution’s website and find the interest rate and compounding frequency (monthly, quarterly, annually, and so on) for a savings account. Record that here:

2. Use the compound interest formula:  where r is the interest rate as a decimal, n is the number of times it is compounded in the time frame, t is the amount of time, and P is the starting value. Calculate your balance if you invest $1,000 for 1 year.

3. Using the compound interest formula, calculate your balance if you invest $1,000 for 5 years.

4. Now select a new compounding period (monthly, quarterly, annually, and so on) and redo your calculations from number 2 & 3, using the same interest rate.

5.Now select a new interest rate from another financial institution that is different than your starting one. Redo your calculations from numbers 2 & 3 with the new rate but keeping the same compounding frequency that you used in 2 & 3.
6. What did you learn about comparing the compounding frequency that interest is compounded?

7.What did you learn about comparing the interest rate?

8. Is it better to have a slightly higher rate or have interest compounded more often?