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?
A The bank will pay $12.55 more in interest in 4 years.
® The accounts at the credit union and the bank will each earn $256 in interest in 4 years.
© The credit union will pay $12.55 more in interest in 4 years.
• The accounts at the credit union and the bank will each earn $268.55 in interest in 4 years.
A. The bank will pay $12.55 more in interest in 4 years.
This is true because the bank compounds the interest annually, which means that the interest is calculated on the initial deposit as well as on the interest that has already been earned. This results in slightly more interest earned compared to simple interest paid by the credit union.