Question

Compounding Interest and the Banker

There are many factors influencing the cost of money for both individuals and corporations. Suppose you deposit money in an interest-bearing account and at the same time borrow a bit of money from the same bank.

1. In which account would the bank apply quarterly compounding factors versus simple interest?

2. Explain your choices and your reasoning. You may want to check your personal accounts in regard to this type of transaction.

3. PLEASE LIST REFERENCES TO WHERE I CAN LOOK IT UP AND IN-TEXT CITATIONS SO I CAN GO OFF THAT

THERE IS NO INTEREST RATE. THESE ARE JUST QUESTIONS

Answer 1

1.It is depending on the account banks can do both but most run of the mill accounts are compound. Savings accounts usually compound daily.

For savings account interest is calculated on daily basis and credited to account quarterly at annual rate.

For loans simple interest is charged depending on the nature of loan.

Compound interest of loan is charged once you start defaulting, or not repaying the loan correctly or at stipulated times.

2.I believe the best answer to this depends on country you are living in. In UK, banks calculate interest on daily basis, this means it is compounded interest when payable on mortgage and bank loans etc. which works better for consumers if you have borrowed money as you pay the interest charges drop.

3. Some part of information goggled taken information from it.