Invest Your $500 Wisely!

Which savings account should you choose and why?

1. A because it has a higher effective annual rate
2. A because it has a higher APR
3. B because it has a higher effective annual rate
4. B because it has a higher APR
5. More than 1 of the answers above are correct

The option for savings account you should pick is 3. B because it has a higher effective annual rate

With an exciting APR of 8%, savings account B is the perfect choice for maximizing your $500 investment. By choosing savings account B, you are setting yourself up for higher returns due to its higher effective annual rate.

But how exactly does savings account B have a higher effective rate?

Calculating the Effective Annual Rate for Savings Account B:

EAR = (1 + APR/n) ^ n - 1

EAR = (1 + 0.08 / 1) ^ 1 - 1

= 0.08

= 8%

As we can see, the effective annual rate for Savings Account B matches its annual rate of 8%. This makes it a superior choice compared to Savings Account A, which only offers an effective annual rate of 7.91% due to monthly compounding.

So, with savings account B, you can expect higher returns on your investment, making it a smart and lucrative choice for your $500.