Question

How does interest rate affect money earned on a savings account?

Answer 1

The interest rate helps you grow your money even if you do not put any more money in the bank yourself.  For example, if your put $100 in an account that has 4% interested compounded daily, you would have $148 in a month.

Answer 2

Answer: The answer is given below.

Explanation: We are given to state the effect of interest rate on a savings account.

We know that money earns compound interest when the interest earned is added to the original deposit each time it is calculated. Hence, in case of a savings account, the interest is compounded, and interest is earned on the interest.

The more frequently the interest is added to the balance, faster the savings will grow. So with daily compounding, every day the amount that earns interest grows by another 1-365th of 1%, if principal is $2,000.

Therefore, at the end of the year, the deposit has grown to $2,020.10.

Hence explained.