You owe $1,842.66 on a credit card at a 14.5% APR. You pay $250.00 at the beginning of the month and put another $250.00 in a savings account at a 4.0% APR. What is the difference in the amount of interest accrued between the credit card and savings account by the end of one month?

Question

You owe $1,842.66 on a credit card at a 14.5% APR. You pay $250.00 at the beginning of the month and put another $250.00 in a savings account at a 4.0% APR. What is the difference in the amount of interest accrued between the credit card and savings account by the end of one month?

Answer 1

To calculate the amount of interest accrued on the credit card, we first need to determine the average daily balance for the month.

Average Daily Balance = (Beginning Balance + Ending Balance) / 2
Beginning Balance = $1,842.66
Ending Balance = $1,842.66 - $250 = $1,592.66

Average Daily Balance = ($1,842.66 + $1,592.66) / 2 = $1,717.66

Next, we calculate the interest accrued on the credit card:
Interest = Average Daily Balance * (APR / 365) * 30 days
Interest = $1,717.66 * (0.145 / 365) * 30 = $17.13

Now, let's calculate the interest accrued in the savings account:
Interest = $250 * (0.04 / 12) = $0.83

The difference in the amount of interest accrued between the credit card and savings account by the end of one month is:
$17.13 - $0.83 = $16.30

Therefore, the difference in the amount of interest accrued between the credit card and savings account by the end of one month is $16.30.

Answer 2

Part B

Using the difference in interest between the credit card and savings account from Part A, how much total interest could you save by putting all $500.00 instead of just $250.00 toward the credit card at the beginning of the month?

Answer 3

Using the difference in interest between the credit card and savings account from Part A, how much total interest could you save by putting all $500.00 instead of just $250.00 toward the credit card at the beginning of the month?