Question

Which statement best explains why interest rates are impprtant when saving money? A lower interest rate allows someone's debt to grow more quickly The higher the interest rate the more cost to save money in a bank The higher the interest rate helps someone's money grow larger over time The lower the interest rate, the less it costs tk save money in a bank

Answer 1

The higher the interest rate helps someone's money grow larger over time

Step-by-step explanation:

Interest rate is the percentage earned by depositors on their deposit. For example, if a person save $200. If the interest rate is 10%, the person earns $20 on her deposit.

The higher the interest rate, the higher the growth in deposit.

For example if a bank offers a compound interest of 10% on deposit and another bank offers a compound interest of 20% on deposit. If $200 is deposited, after 3 years, the total amount that would be had in each bank is

$200 x (1.1)^3 = $266.20

$200 x (1.2)^3 = $345.60

It can be seen that the amount after 3 years is higher at the bank with the higher interest rate