Simple Or Compound?

[BEENTHEREDONETHAT]

Which interest rate works out best for one year?

8.8% simple interest, credited and paid in one year

or

8.55% interest credited and and paid quarterly?

[PattayaParent]

Would you believe that they will both give exactly the same interest at the end of the year?

The banks aren't in the business of giving too much money away.

[marc69]

Actually the second plan is slightly better. If you save 100 you will get 100*(1+0.088)= 108.8 according to the first alternative and 100*(1+0.0855/4)^4= 108.8281 in the quarterly plan assuming that you will save the interest at the end of each quarter.

[BEENTHEREDONETHAT]

Thanks for that. I think I will go with the 8.55% even though it makes you feel better to be getting 8.8%. The quarterly income is nice.

Thanks

[sonicdragon]

It's not as simple as that. Is the 8.55% guaranteed for 1 year ? Probably not. Probably it is subject to change every quarter. So after this Q you might get only 8% (for example_ which will affect the 1 year equivalent rate a lot. On the other hand, rates might go up !

Also, with quartely interrest you have the option to switch currencies if that's what you want.

What curency is this ? NZD ? Rates may be on their way down.....