Answered

Jana has $100 to open a checking account. She can maintain a monthly balance of $300. She also has a savings account at the same bank. She plans to use online bill paying and write fewer than 10 checks per month. She currently uses her bank's ATM several times per month. Jana does not overdraw her account.



\begin{table}

\captionsetup{labelformat=empty}

\caption{Bank Account Terms and Conditions}


Account AAccount BAccount CAccount D

Minimum Balance		\$500\$250\$100\$100

Interest		0.2\%0\%0\%0.2\%

Overdraft Fees		\$0 if linked with savings account or \$40 per overdraw\$35 per overdraw\$25 per overdraw\$40 per overdraft

ATM Usage/Fees		\$0 for all ATMs\$0 for ABC bank ATMs / \$3 for non-ABC bank ATMs\$3 per transaction\$2.50 per transaction

Monthly Fee		\$10 or \$0 with direct deposit\$0\$0\$7 or \$0 with linked savings




\end{table}



Which account is best suited for Jana?

Verified Answer :

  • Analyze the eligibility of each account based on Jana's \$300 balance constraint.
  • Eliminate Account A because it requires a \$500 minimum balance.
  • Compare Account B, C, and D based on fees, noting that Account B offers free ATM access at her bank, while C and D charge per transaction.
  • Identify Account B as the most cost-effective option since it minimizes monthly expenses to \$0.
  • The final account selection is \(\boxed{\text{Account B}}\).

Explanation

  1. Problem Analysis and Data Overview

We evaluate the four account options based on Jana's profile: a \$100 opening deposit, a consistent \$300 monthly balance, ownership of a linked savings account, usage of online bill pay, writing fewer than 10 checks per month, and frequent use of her bank's ATMs. Jana does not overdraw her account.

  1. Evaluating Eligibility Based on Minimum Balance

First, we determine eligibility based on the minimum balance requirement. Jana maintains a \$300 balance.

  • Account A: Requires \$500. Since \$300 < \$500, Account A is not suitable for Jana.
  • Account B: Requires \$250. Since \$300 \geq \$250, Account B is eligible.
  • Account C: Requires \$100. Since \$300 \geq \$100, Account C is eligible.
  • Account D: Requires \$100. Since \$300 \geq \$100, Account D is eligible.
  1. Comparing Monthly Costs and Benefits

Next, we calculate the estimated monthly cost for the eligible accounts (B, C, and D) based on Jana's habits:

  • Account B: No monthly fees. ATM usage at her bank is free. Assuming she uses her bank's ATM, her monthly cost is \$0.
  • Account C: Charges \$3 per ATM transaction. Using the ATM "several times" (e.g., 3 times) would cost her \(3 \times \$3 = \$9\) per month.
  • Account D: Charges \$2.50 per ATM transaction. With a linked savings account, the \$7 monthly fee is waived. However, using the ATM "several times" (e.g., 3 times) would cost her \(3 \times \$2.50 = \$7.50\) per month. Although it earns 0.2% interest, this is negligible (0.2% of \$300 is only \$0.60 per year, or \$0.05 per month). Even with the interest, the transaction fees make this more expensive than Account B.
  1. Conclusion and Final Decision

Comparing the three options: Account B costs \$0 and covers her ATM needs for free at her bank. Account C and D both incur recurring ATM transaction fees that make them more expensive than Account B. Therefore, Account B is the most suitable choice for Jana. The final choice is \(\boxed{\text{Account B}}\).

Examples

When choosing a financial product, it is essential to look beyond interest rates and focus on your specific usage patterns. For example, if you frequently withdraw cash, selecting an account with high per-transaction ATM fees can quickly offset any small interest earnings. By calculating your expected monthly costs based on your habits—like ATM usage or potential maintenance fees—you can effectively minimize expenses and maximize the utility of your bank account.

Related Questions