Question

Dunwoody Bank offers 1.8% interest compounded monthly. Chamblee Bank offers 2.2% interest compounded quarterly. A client wants to deposit $10,000 for 3 years and get the better return on his deposit. Calculate the return each bank would give on his deposit so the client can decide which will be better for him

Answer 1

Firstly, we will calculate the future value of principle amount on rate of interest offered by both the banks

Particulars	Dunwoody Bank	Chamblee Bank
Rate of Interest offered	1.8%	2.2%
Compounding	Monthly	Quarterly
Principal Amount invested	$10,000	$10,000
Time Period	3 Years	3 Years
Future Value of Deposit after 3 years	$10,554.42	$10,680.34
Interest Earned	$554.42	$680.34

Thus, after comparing the interest rate offered by both the banks. It can be clearly stated that Interest rate generated on investment made in Chamblee Bank (i.e., $680.34) is more than Dunwoody Bank ($554.42). Subsequently, the Chamblee Bank can be preferred over Dunwoody Bank.