In which account would the bank apply quarterly compounding factors versus simple interest? Explain your choices and your reasoning. You may want to check your personal accounts in regard to this type of transaction.

Money always has a cost whether spent or borrowed from your account by corporations,
banks and individuals both receiving and lending. Many factors also influence the cost of this
money which is borrowed or lent. These factors include the purpose of which is borrowed, a
source of money, creditworthiness of the borrower, rates offered, interest and tax rate influence
the total cost of money. Nonetheless, macro-economic factors like inflationary trends,
governmental regulations, trade levels influenced the overall cost.
Compound interest makes a loan or deposit grow at a much faster rate as compared with
the simple interest which is always calculated based on the principal amount only. The rate
which accrues this compound interest always depends on the frequency of compounding. This
means the higher the frequency or number of compounding periods hence the higher the
compound interest. Since compound interest is actually interest which accumulates interest on
another interest, I think that quarterly or semi-annual compounding factors can be applied to both
savings and checking accounts. I also believe that this factor of adding compound interest mainly
to a given account depends mainly on the bank which one has undertaken to invest in.
When deciding on compound interest, interest is always earned on principle value and
also on the same principle over time. Time is critical when one is making money on another
interest. The longer time one's money remains in the account, then, the more this cash attracts or
accumulates more interest.

COMPOUNDING INTEREST AND THE BANKER 3

References

Parrino, Robert, Kidwell, D. S., Bates, T. (09/2014). Fundamentals of Corporate Finance, 3rd
Edition. [VitalSource Bookshelf Online]. Retrieved from
https://kaplan.vitalsource.com/#/books/9781118901656/.