Final answer:
When comparing savings accounts, select the one with the highest effective annual rate (EAR) as it accurately reflects the return including the effects of compounding interest.
Step-by-step explanation:
When comparing savings accounts, it is advisable to select the account with the highest effective annual rate (EAR). The effective annual rate accounts for the effect of compounding, which can increase the amount of interest you earn over time. This rate is more accurate than simply looking at the stated or nominal interest rate since it reflects the actual return on your savings. While the annual percentage rate (APR) can provide some insight, the EAR gives a clearer picture of the potential growth of your savings, particularly when interest is compounded more frequently than annually.
According to the information provided, savings account interest rates are typically a bit lower than that of Certificates of Deposit (CDs), as CDs require locking funds for a specified duration, thereby reducing liquidity in exchange for a higher interest rate. Therefore, when comparing savings accounts, looking for the one with the highest EAR will most likely yield better returns over time.