You want to invest $7500 for 15 years. The local bank offers a rate of 6.5% compounded monthly. The local credit union offers a rate of 6.75% compounded semiannually. Which is the better option? How did you arrive at this conclusion?

Question

You want to invest $7500 for 15 years.  The local bank offers a rate of 6.5% compounded monthly.  The local credit union offers a rate of 6.75% compounded semiannually.  Which is the better option?  How did you arrive at this conclusion?

MathMate · Answer

Calculate the effective interest, i.e. actual performance over a year: Local bank = (1+0.065/12)^12 =1.066971852002543 Credit union = (1+0.0675/2)^2 = 1.0686390625 So the credit union pays a little more.