Darryl plans to deposit $2,000 into a new account that offers an annual interest rate of 3.2%. He will make no additional deposits or withdrawals. Darryl can choose between an account at a bank and an account at a credit union:

Question

Darryl plans to deposit $2,000 into a new account that offers an annual interest rate of 3.2%. He will make no additional deposits or withdrawals. Darryl can choose between an account at a bank and an account at a credit union:

The bank compounds the interest annually.
The credit union pays simple interest.
Which statement is true if Darryl leaves his money in the account for 4 years?

Answer 1

If Darryl leaves his money in the account for 4 years, he will earn more interest with the bank account that compounds annually compared to the credit union account that pays simple interest. Compounding interest allows the account balance to grow faster over time compared to simple interest.