Question

If an investor has a choice of investing money at 6% compounded daily or 6.025% compounded quarterly which one is best

Answer 1

General Rule: Daily compounding gives a higher yield

Compounding works like this:

6.025% per quarter

Quarter 1: $100 x 6.025% = $6.025

Quarter 2: $106.025 x 6.025% = $6.388

Quarter 3: $112.413 x 6.025% = $6.7729

Quarter 4: $119.186 x 6.025% = $7.4491

Etc…

6% per day

Day 1: $100 x 6% = $6

Day 2: $106 x 6% = $6.36

...

Day 365: $193.47 x 6% = $11.96