SavingsTalk.com

Minsk

the first thing most people would say is, &quot;why not the one savings thats at 4.5%?&quot; so to make things easy, let's say it is IMPOSSIBLE to have just the one at 4.5%.<br /><br />so let's say for example you have $200,000. you are presented with a choice out of two options,<br /><br />A] $100,000 @ 4.5% APY interest, and the other $100,000 @ 4.3% APY interest.<br /><br />or<br />B] all $200,000 @ 4.3% APY interest.<br /><br />the interest is compounded daily, paid monthly, and the rate does not change.<br />which of these values will pay more money over the long haul, having all the money compounded at a lower rate, or having half of the money compounded at a higher rate?<br /><br />if you show the math you'll get the best answer.<br />

Luca

Do your own homework.
Oh and you might want to split the accounts up into 100,000 each and have the interest transfered to another high interest account. FDIC only covers accounts with 100,000 dollars in them.

Vitovt

Did you just answer your own question?

vix

It's the one account with the lower APY, but I am not doing the math.
I'm right. ;)

vira

at the end of a two year period:

Plan A: 109202.50+108784.90 = 217,987.40

Plan B: 217,569.80

here's the details on plan B
100000 x 1.043 x1.043

natali

Unless I'm missing some important element, then it's a pretty simple answer: invest in choice A to get the higher return.

Here's the math:
A) In one year, your return is $4,500 + $4,300 = $8,800
B) In one year, your return is $8,600

Another way to look at it is that you are definitely investing $100M at 4.3%, and your choice is investing the other half the money at 4.3% or 4.5%. The obvious choice is that the second $100M should be invested at the higher 4.5%. Hope that helps.

vira

If you want to know which is better in this case, since everything is compounded daily, you do not have to do any calculations at all. If you split the $200,000 equally between the 4.3% account and the 4.5% account, your effective annual interest is 4.4%

It is not necessary to do any calculations, just average out the interest rate. You can also determine the same thing using unequal amounts deposited in accounts at different rates, but that is not the question here. It's not necessary to even bother calculating the interest earned at each rate; this question as stated is far too simple to need to do that..

Not necessary to show the math. It is simply the average of 4.3 and 4.5, which is 4.4 This is the best option because 4.4 is higher than 4.3. You called it A]

sox

It's as simple as it seems, you don't need much math.
Consider only APY.
Take $200,000 and put it in the 4.3% APY account for one year and you will earn $8600 in interest.
Put $100k in that same account for one year and it will earn $4300. Put the other $100k in a 4.5% account and it will earn $4500. So total interest earned is $4300+$4500 = $8800, which is $200 more than putting it in one account.

vira

The question is so obvious I'm surprised you are asking it. clearly having half of the money earn 4.3% and half 4.5% will earn more than having all of the money earn 4.3%. The two separate accounts will earn about $208 per year more than a single account.