Question

The National Bank of Wynona offers two types of savings account. The Top-Up-N-Saver account pays 3.5% annual compound interest, whereas the Super-Saver account pays 4% annual simple interest. If we put in $1,000 now and leave the money in the bank account for 10 years, which account would pay the most interest, and how much more?

Select one: a. The Top-Up-N-Saver account would pay $10.60 more in interest. b. The Top-Up-N-Saver account would pay $50 more in interest. c. The Super-Saver account would pay $50 more in interest. d. The Super-Saver account would pay $10.60 more in interest. e. Both accounts would pay the same interest.

Answer 1

Top-Up-N-Saver account:

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period

A=1000*(1.035)^10

=$1410.6(Approx)

Interest=A-P

=1410.6-1000

=$410.6(Approx)

For Super-Saver account:

Simple interest=Principal*Interest Rate*Time period

=1000*4%*10=$400

Hence Top-Up-N-Saver account would pay=(410.6-400)=$10.6 more in interest

Hence the correct option is:

The Top-Up-N-Saver account would pay $10.60 more in interest.