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MathidiaMathematics Academy
Advanced number and financial mathematics
Lesson 3 of 75
Standard practice

Financial product comparison

Objective. Compare interest, depreciation and tariff structures critically.

  1. 1. Learn
  2. 2. Worked example
  3. 3. Practice
  4. 4. Feedback
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Learn: the key idea

Financial product comparison evaluates several interest, depreciation or tariff schemes over the same timeframe so the genuinely better deal can be identified, rather than comparing headline rates alone. This usually means calculating the actual total paid or received for each option using compound or simple interest formulae, then comparing final amounts or total costs directly. Tariffs with standing charges plus unit rates must be compared at a specific usage level, since the cheaper option can change with quantity used. For example, a savings account at 2.5% compound beats 2.5% simple interest over several years because compound interest earns interest on interest.

Worked example

Account A pays 3% simple interest; Account B pays 2.8% compound interest, both for 3 years on £5000. Which pays more interest?

£5000.00
Money illustration for £5000
  1. 1Account A: simple interest = 5000 × 0.03 × 3 = 450
  2. 2Account B: final amount = 5000 × 1.028³ = 5431.96 (to 2 d.p.)
  3. 3Account B interest = 5431.96 − 5000 = 431.96
  4. 4Compare 450 with 431.96: Account A gives more interest

Answer: Account A

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Common mistake. Students sometimes compare only the interest rates and ignore fixed fees or standing charges, judging a tariff with a lower unit rate as cheaper even though its higher standing charge makes it dearer at low usage; always compute total cost at the stated usage.

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