Question

Anne is comparing savings accounts. One account has an interest rate of 1.2 percent compounded yearly, and one account has an interest rate of 1.2 percent compounded monthly. Which account will earn more money in interest?

Answer 1

in short and without much fuss

let's say Anne puts "x" amount in the account at 1.2% rate annually, that means after 1 year, she will have "x" + 1.2% of "x", or 1.012x to be exact.

the 1.2% rate, kicks in as the period of a year is met.

now, what if Anne puts it in the monthly compounded type? that means, the compounding period is a month, so after 1 month, she has 1.2% extra, or 1.012x, and after 2 months, she will have 1.2% extra of 1.012x, or 1.012144x, and after 3 months, she will have 1.2% extra of 1.0121x, or 1.012145728x and so on.

anyhow, the shorter the compounding period, the more the 1.2% kicks in, the more accumulation in the account.