Gabriel received a $5,000.00 bonus and wants to put the money into a savings account. A savings account at bank A earns 4% simple interest and a savings account at bank B earns 3% interest compounded quarterly. If Gabriel plans to deposit the $5,000.00 and leave it in the account for 2 years, at which bank would he earn more interest?
A:bank A
B:bank B
C: The interest earned at both banks will be the same.

Question

Gabriel received a $5,000.00 bonus and wants to put the money into a savings account. A savings account at bank A earns 4% simple interest and a savings account at bank B earns 3% interest compounded quarterly. If Gabriel plans to deposit the $5,000.00 and leave it in the account for 2 years, at which bank would he earn more interest?
A:bank A
B:bank B
C: The interest earned at both banks will be the same.

chaise · Answer

Well, the formula for simple interest is:

Interest=Principle*Rate*Time

Where priniple=original amount
rate=interest rate as a percentage (divide 100)
t=time 

In compound interest,

Interest=P(1+(r/n)^(nt)

Where r=rate
P=original amount
n=number of times per a year interest is compounded (quarterly is 3 times a year)
t=time in years
r=interest rate as a percentage (divide by 100)

Can you solve for in interest in both examples and find which is better?