Financial Report
Please open the link below to get the completed financial report worksheet:
Findings
The interest rates for the research were derived from Wells Fargo & Company. The financial organization compounds the customers’ savings by 1% every month. Using the compound interest formula, and the rate is denoted by decimal, the balance after investing $ 1,000 would be $ 1,000.10. Besides, the balance would be $ 1,000.50 when an investor keeps the savings up to five years. Another analysis was conducted using the interest rate from Bank of America, which compounds investments by 3% every month. An investor would get $ 1,000.30 for one year and 1,001.50 for five years.
After completing the financial report worksheet, I developed the following findings for my research; first, a high frequency of compounding interest increases the savings balance for a particular period. Customers need to review compounding terms for any financial organization before investing in savings (Chan & Tse, 2017). The compounding frequency affects the recurrence of interest rates, which can optimize the balance. Secondly, high-interest rates increase savings investment in users’ accounts due to frequent compounding (Chan & Tse, 2017). Investors need to consider compounding frequency before considering the high-interest levels.
Conclusions on Interests Rates and Compounding Frequency
Interest and compounding rates are significant aspects that investors need to consider when selecting financial institutions to make investments. Besides, the two elements have a direct influence on users’ savings accounts. After examining the variables, it is crucial to conclude that high-interest levels are essential in increasing the savings account’s earning potential. Besides, the frequency of compounding rates has a significant influence on savings returns. For instance, an investor can have two options regarding savings accounts. The first option would be a 5% interest rate, which is compounded after three months. However, the second choice would be a 4% interest that is compounded every month. The appropriate choice for an investor who focuses on optimizing earnings is the second option since the interests will increase every month. The significant consideration for savings would be the compounding frequency since it increases the principal amount’s interests.
Recommendations
Is a savings account the right way to earn interest?
A savings account is an excellent method for earning interest when customers select accounts that meet their preferences. Besides, savings account for significant returns in the short and long-term. Having a savings account is an excellent method for securing money since the interest rates accumulate after some time. The primary consideration that users and investors need to note is the compounding frequency for savings accounts (Acharya & Ryan, 2016). For instance, investors can select savings accounts that are compounded monthly to optimize their savings balance.
Which is better; higher interest rate or more frequent compounding?
When opening a savings account, it is prudent to examine the interest and compounding rates. The two components are essential for savings growth. A high frequency in compounding levels increases the returns. Continuous compounding increases interest that is credited to the principal. Besides, the interest accumulates, which optimizes the savings (Chan & Tse, 2017). Therefore, a high compounding frequency is essential in increasing interest in investments. Several factors, such as nominal yield and period, need to remain constant to facilitate the impact of compounding on interest rates (Chan & Tse, 2017). Consumers need to focus on frequent compounding while selecting savings accounts since it increases the interest rates.
References
Acharya, V. V., & Ryan, S. G. (2016). Banks’ financial reporting and financial system stability. Journal of Accounting Research, 54(2), 277-340. Retrieved from https://doi.org/10.1111/1475-679X.12114
Chan, W. S., & Tse, Y. K. (2017). Financial mathematics for actuaries. World Scientific Publishing Company.