Which of the following conditions will maximize the amount of interest you earn?

A) A high interest rate & long time period

B) A high interest rate & short time period

C) A low interest rate & long time period

D) A low interest rate & short time period

A) A high interest rate & long time period

Explanation:

A high interest rate means that your principal amount is earning a higher return when deposited in a savings account. The interest amount when compounded frequently like every month, it also earns interest on it as well as the original amount invested. This effect is called compounding. On the other hand, a long time period of investment means that you have a longer time horizon over which your principal earns interest. For example if you start saving when you are 18 years old and wants to retire at 68 years old, you will have 50 years worth of interest earned which is longer investment horizon than when you start saving at 40 years of age.