Let's calculate the interest earned by each account for the first three years.
1) Simple Interest Account:
Year 1:
Interest earned = Principal * Rate = $20,000 * 2% = $400
Year 2:
Interest earned = Principal * Rate = $20,000 * 2% = $400
Year 3:
Interest earned = Principal * Rate = $20,000 * 2% = $400
Total interest earned after three years = $400 + $400 + $400 = $1,200
2) Compound Interest Account:
Year 1:
Interest earned = Principal * Rate = $20,000 * 2% = $400
Year 2:
Interest earned = (Principal + Year 1 Interest) * Rate = ($20,000 + $400) * 2% = $408
Year 3:
Interest earned = (Principal + Year 2 Interest) * Rate = ($20,000 + $408) * 2% = $416.16
Total interest earned after three years = $400 + $408 + $416.16 = $1,224.16
Conclusion:
After comparing the interest earned by each account for the first three years, we can see that Jim earns more interest with the compound interest account.