When the annual interest rate stays the same, more frequent interest compounding helps savers earn more interest over the course of the year.

Question

Quizplus · Accepted Answer

This is known as the power of compounding. The more frequently interest is compounded, the more interest is earned on the principal amount. This is because the interest earned in each compounding period is added to the principal amount, resulting in a higher principal amount for the next compounding period. This results in a snowball effect, allowing the savings to earn interest at an accelerated rate.

When the Annual Interest Rate Stays the Same, More Frequent