Question

Tom’s investment account at his bank has compounding interest. He isn’t sure if this is a positive thing for his investment. What is the best advice you can offer Tom?

A. ask your bank compound interest less frequently.
B. Withdraw your investment immediately because compounding interest is a scam.
C. Invest in a bank that doesn’t offer a compounding interest so there is less risk.
D. Keep your account open and you will earn more interest you’ve already earned.

Answer 1

The best advice for Tom is:

**D. Keep your account open and you will earn more interest on the interest you’ve already earned.**

Compounding interest is beneficial because it allows your investment to grow more over time. The interest you earn on your investment will also start to earn interest, leading to an exponential growth effect. Therefore, it is advantageous for Tom to maintain his investment account with compounding interest.