SavingsTalk.com

city_guide · 10-31-2007, 02:02 PM

the first thing most people would say is, "why not the one savings thats at 4.5%?" so to make things easy, let's say it is IMPOSSIBLE to have just the one at 4.5%. so let's say for example you have $200,000. you are presented with a choice out of two options, A] $100,000 @ 4.5% APY interest, and the other $100,000 @ 4.3% APY interest. or B] all $200,000 @ 4.3% APY interest. the interest is compounded daily, paid monthly, and the rate does not change. 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? if you show the math you'll get the best answer.

Hex · 10-31-2007, 02:02 PM

A is the better option, to show the math you need to specify a period for the investment.
Without that we can look at the two rate and you will see clearly that the first 100K is the same in both A and B.
But in A the second 100K is gaining .2% more interest than in B.
Below is an interest calculator to try some numbers in.
Here are the equations for you to look over.
The Compound Interest Equation
P = C (1 + r/n) nt
where
P = future value
C = initial deposit
r = interest rate (expressed as a fraction: eg. 0.06)
n = # of times per year interest in compounded
t = number of years invested

Simplified Compound Interest Equation
When interest is only compounded once per yer (n=1), the equation simplifies to:
P = C (1 + r) t

vira · 10-31-2007, 02:02 PM

i'll only show not-compunded daily, because the result is the same as to which as better and it will save me 3752 pages of work.

100,000 x 1.045 = 104,500 in 1 year
100,000 x 1.043 = 104,300 in 1 year
104500+104300= $208,800 if seperate accounts

200,000 x 1.043 = 208,600 in 1 year

therefore, the split accounts are better for you

mustafa · 10-31-2007, 02:02 PM

I'm not sure I understand the question. Clearly it is to your advantage to have whatever amount possible at 4.5%. In your example, the future value of $100,000 at 4.3% (daily compound) is $104,393.53 plus the future value of $100,000 at 4.5% (daily compound) [$104,602.50] equals $208996.03. The alternate scenario yields (fv$200,000@4.3%dc) only $208,787.05. Even if the actual question is daily compounding at a lower rate versus (let's say) annual interest at the higher rate, It would be $104,500 plus $104,300 ($208,800) versus the same $208,787.05. As you can see, it is still better to choose the mixed rate.
Hope this helps

ZNOF · 10-31-2007, 02:02 PM

100,000.00 @ 4.5% will be $4,500.00

200,000.00 @ 4.3% will be $8,600.00

10-31-2007, 02:02 PM	#1
city_guide Greenhorn Join Date: Jul 2006 Posts: 16 Rep Power: 0	whats better: two savings accounts at 4.3% & 4.5%, or one savings account at 4.3%? the first thing most people would say is, "why not the one savings thats at 4.5%?" 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 />

10-31-2007, 02:02 PM	#2
Hex Greenhorn Join Date: Aug 2006 Age: 25 Posts: 10 Rep Power: 0	whats better: two savings accounts at 4.3% & 4.5%, or one savings account at 4.3%? A is the better option, to show the math you need to specify a period for the investment. Without that we can look at the two rate and you will see clearly that the first 100K is the same in both A and B. But in A the second 100K is gaining .2% more interest than in B. Below is an interest calculator to try some numbers in. Here are the equations for you to look over. The Compound Interest Equation P = C (1 + r/n) nt where P = future value C = initial deposit r = interest rate (expressed as a fraction: eg. 0.06) n = # of times per year interest in compounded t = number of years invested Simplified Compound Interest Equation When interest is only compounded once per yer (n=1), the equation simplifies to: P = C (1 + r) t

10-31-2007, 02:02 PM	#3
vira Greenhorn Join Date: Jul 2006 Posts: 10 Rep Power: 0	whats better: two savings accounts at 4.3% & 4.5%, or one savings account at 4.3%? i'll only show not-compunded daily, because the result is the same as to which as better and it will save me 3752 pages of work. 100,000 x 1.045 = 104,500 in 1 year 100,000 x 1.043 = 104,300 in 1 year 104500+104300= $208,800 if seperate accounts 200,000 x 1.043 = 208,600 in 1 year therefore, the split accounts are better for you

10-31-2007, 02:02 PM	#4
mustafa Greenhorn Join Date: Jul 2006 Posts: 5 Rep Power: 0	whats better: two savings accounts at 4.3% & 4.5%, or one savings account at 4.3%? I'm not sure I understand the question. Clearly it is to your advantage to have whatever amount possible at 4.5%. In your example, the future value of $100,000 at 4.3% (daily compound) is $104,393.53 plus the future value of $100,000 at 4.5% (daily compound) [$104,602.50] equals $208996.03. The alternate scenario yields (fv$200,000@4.3%dc) only $208,787.05. Even if the actual question is daily compounding at a lower rate versus (let's say) annual interest at the higher rate, It would be $104,500 plus $104,300 ($208,800) versus the same $208,787.05. As you can see, it is still better to choose the mixed rate. Hope this helps

10-31-2007, 02:02 PM	#5
ZNOF Greenhorn Join Date: Jul 2006 Posts: 16 Rep Power: 0	whats better: two savings accounts at 4.3% & 4.5%, or one savings account at 4.3%? 100,000.00 @ 4.5% will be $4,500.00 200,000.00 @ 4.3% will be $8,600.00

SavingsTalk.com

Your guide to saving money and making smart investments!