Question 881267: Terry is confused about the various compounding periods offered by his bank. If he deposits $6000 into an investment for one year at 5% per year, how much more interest will he earn by compounding semi-annually instead of annually?
Answer by JulietG(1812)   (Show Source):
You can put this solution on YOUR website! If he compounds annually, it will only be once.
$6000 * .05 = $300 --> $6300 total
If he compounds semi-annually at the same rate, he'll compound twice at 2.5% each.
$6000 * .025 = $150.
The difference will be in the second payout. It will pay $6150 * .025, or $153.75, for a total of $6303.75.
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It might not seem like much, but most credit card companies compound DAILY, so you end up paying interest on the interest of the interest.
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