ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Simple
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Compound
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Either-They will be the same
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Neither-Banks don’t use interest
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Detailed explanation-1: -Like savings accounts, CDs earn compound interest-meaning that periodically, the interest you earn is added to your principal. Then that new total amount earns interest of its own, and so on.
Detailed explanation-2: -Answer and Explanation: Most of the banks use compound interest rate with differing frequency. The banks are, therefore, required to quote effective annual rates so that different rates can be compared by the borrowers. Simple interest compounding is rarely used in the banking sector.
Detailed explanation-3: -Compound interest is often best when you’re saving money because you’ll earn interest on interest. But if you’re taking out a loan, a simple interest loan may be the better option since it could lead to less costs overall.
Detailed explanation-4: -Hence, Banks use both simple interest and compound interest.