How do i solve compound interest questions like this? Do I just use the compound interest formula directly?
If I have lets say $500 in a savings account for 5 years and it earns 2.5% Annual equivalent rate compounded monthly. How much will I have now?
Or should I use the Annual equivalent rate formula for compounding monthly?
If you gain $2.5\%$ in one year, you gain $0.21\%$ per month.
You can calculate the amount of money you have $x$ with:
$x=x_0g^{t/\tau}$, with $x_0$ your starting amount, $g$ the growth factor, and $\tau$ is the timescale.
If you calculate in years, $\tau = 1$ year, $g=1.025$, for months: $\tau = 1$ month, $g=(1.025)^\frac{1}{12}$