Question

What does “compounded daily” mean?

3.

How does the annual percentage yield (APY) differ from the annual interest rate (APR)?

4.

Why should a person use APY instead of interest rate when comparing savings accounts?

5.

List three ways that a Certificate of Deposit (CD) differs from a passbook or statement savings account.

5a.

5b.

5c.

Refer to the chart below to answer the questions that follow.

GREAT START COMMUNITY BANK
Savings Rates

Regular Passbook	Interest Rates 0.10%
**Money Market Savings or Checking Plus	Savings	Checking
$50,000 or greater	0.30%	0.20%
$25,000 to $49,999	0.20%	0.10%
$10,000 to $24,999	0.10%	0.10%
$1,000 to $9,999	0.10%	0.10%
**Balances below $1,000 earn the regular Passbook Rate. **Fees could reduce earnings on accounts.
**Certificates of Deposit ($500 minimum)	A.P.Y.	Interest Rate
31-day CD	0.10%	0.099%
32-day to 179-day CD	0.10%	0.099%
6-month CD	0.25%	0.249%
1-year CD	0.50%	0.499%
18-month CD	0.75%	0.749%
18-month Variable Rate CD	0.75%	0.749%
(add deposits anytime during term)
2-year CD	1.00%	0.995%
3-year CD	1.51%	1.500%
4-year CD	1.76%	1.749%
5-year CD	2.01%	1.990%
**A penalty may be imposed for early withdrawal.

6.

Brent has saved $3,000 toward his daughter’s college education. He plans to keep this money in Great Start Community Bank. The chart above displays the bank’s current savings account rates. Use the compound interest calculator below to compute your answers to the following questions.

Note: You will use an online financial calculator to answer some questions in this competency. Round off your answers to two places to the right of the decimal point.

6a. Brent chooses to deposit $3,000 at Great Start Community Bank for one year in a regular savings account (also referred to as Regular Passbook Savings). The interest is compounded monthly. How much interest will he earn?

6b. If, instead, Brent invests his $3,000 into a one-year CD (which compounds interest monthly), how much interest will he earn?

6c. Brent finally decides to open a five-year CD and deposit $3,000 into this account. The interest on this particular account compounds monthly. Calculate how much money the CD will be worth at the end of five years.

Answer 1