Based upon past experience, Bill expects to accidentally overdraft the account 2 times per year due to unexpected charges and miscommunications. He expects no second copies of statements and to use network ATMs 4 times per month with State Bank (due to less in-network ATMs being available), or 2 times per month with Common Bank. He has $2500 to deposit to an emergency savings account for overdraft protection and thinks that the balance will be enough to cover most all overdrafts in the future if automatic transfers are made when needed. Based on the tables of fees, which bank is expected to cost the least amount in fees per year?
a. State Bank is expected to cost the least.
b. Common Bank is expected to cost the least.
c. State Bank and Common Bank would have the same costs for Bill.
d. The fees cannot be estimated in advance.
Answer (2)
Common Bank incurs lower fees ($96) compared to State Bank ($144) due to fewer ATM transactions at a lower fee. Therefore, Common Bank is expected to cost Bill the least amount in annual fees. The correct answer is option b.
;
Calculate State Bank's annual ATM fees: $4 \times 12 \times $3 = 144 .
Calculate Common Bank's annual ATM fees: $2 \times 12 \times $4 = 96 .
Determine total annual fees for each bank, considering overdraft protection eliminates overdraft fees.
Compare total fees: Common Bank ($96) is less than State Bank ( 144 ) , so C o mm o n B ank cos t s l ess . \boxed{b}$
Explanation
Analyzing the Fees Let's analyze the fees associated with each bank to determine which one would cost Bill the least per year. We'll consider overdraft fees and ATM fees for both State Bank and Common Bank.
Calculating State Bank Fees For State Bank:
Overdrafts: Bill expects 2 overdrafts per year. Since State Bank offers overdraft protection from a linked savings account, we'll assume there are no overdraft fees.
ATM Fees: Bill uses network ATMs 4 times per month. State Bank charges 3 f ore a c ha dd i t i o na l n e tw or k A TMt r an s a c t i o n . S o , t h e ann u a l A TM f ees a rec a l c u l a t e d a s f o ll o w s : 4 transactions/month × 12 months/year × $3/ transaction = $144 $
Total Annual Fees for State Bank: $0 (overdraft) + $144 (ATM) = $144
Calculating Common Bank Fees For Common Bank:
Overdrafts: Bill expects 2 overdrafts per year. Since Common Bank offers overdraft protection from a linked savings account, we'll assume there are no overdraft fees.
ATM Fees: Bill uses network ATMs 2 times per month. Common Bank charges 4 f ore a c hn e tw or k A TMt r an s a c t i o n . S o , t h e ann u a l A TM f ees a rec a l c u l a t e d a s f o ll o w s : 2 transactions/month × 12 months/year × $4/ transaction = $96 $
Total Annual Fees for Common Bank: $0 (overdraft) + $96 (ATM) = $96
Comparing Total Fees Comparing the total annual fees for both banks:
State Bank: $144
Common Bank: $96 Since $96 < $144, Common Bank is expected to cost Bill less in fees per year.
Conclusion Therefore, Common Bank is expected to cost Bill the least amount in fees per year.
Examples
Understanding and calculating bank fees can help you make informed decisions about where to keep your money. For example, if you frequently use ATMs from different banks, choosing a bank with lower out-of-network ATM fees can save you a significant amount of money over time. Similarly, understanding overdraft protection options and their associated costs can help you avoid unexpected charges. By carefully analyzing your banking habits and comparing fee structures, you can minimize your banking costs and maximize your savings.
