Wilbur has $800 to open a checking account. He can maintain a minimum balance of at least $500. He plans to use the ATM twice a month and he maintains a savings account at the same bank. His employer has direct deposit and he sometimes overdrafts his account.
Bank Account Terms and Conditions
| | A | B | C | D |
| :---------------- | :----------------------------------------------- | :------------------------------------------------------------------ | :--------------------- | :--------------------- |
| Minimum Balance | $500 | $250 | $300 | $100 |
| Interest | 0.2% | 0% | 0.02% | 0% |
| Overdraft Fees | $0 if linked with savings account or $40 per overdraft | $35 per overdraft | $25 per overdraft | $25 per overdraft |
| ATM Usage/Fees | $0 for all ATMs | $0 for ABC bank ATMs $3 for nonABC bank ATMs | $4 per transaction | $3 per transaction |
| | $10 or | | | |
Answer (2)
After analyzing Wilbur's banking needs and the terms of each account option, Option A is the best choice because it has no ATM fees and avoids overdraft fees when linked to his savings account. Other options incur additional costs due to fees for ATM usage and overdrafts. Therefore, Option A is recommended for its overall cost-effectiveness.
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Analyze each bank account option (A, B, C, and D) based on Wilbur's situation.
Consider the minimum balance requirement, ATM usage fees, and overdraft fees for each option.
Calculate the total monthly cost (ATM fees + potential overdraft fees) for each option.
Compare the total monthly costs and other factors (minimum balance, interest) for each option and determine that Option A is the best choice because it allows him to avoid ATM and overdraft fees. The final answer is A.
Explanation
Problem Analysis Wilbur has $800 to open a checking account and needs to maintain a minimum balance of at least $500. He uses the ATM twice a month, has a savings account at the same bank, direct deposit, and sometimes overdrafts. We need to find the best bank account option (A, B, C, or D) for him based on the given terms and conditions.
Analyzing Each Option Let's analyze each option:
Option A: Minimum balance $500, 0.2% interest, $0 overdraft fee if linked to savings, otherwise $40, $0 ATM fees. Option B: Minimum balance $250, 0% interest, $35 overdraft fee, $0 ATM fee for ABC ATMs, $3 for non-ABC ATMs. Option C: Minimum balance $300, 0.02% interest, $25 overdraft fee, $4 per ATM transaction. Option D: Minimum balance $100, 0% interest, $25 overdraft fee, $3 per ATM transaction.
ATM and Overdraft Fees Wilbur can meet the minimum balance for all options since he has $800 and needs to maintain at least $500. Now let's consider ATM fees and overdraft fees.
Option A: No ATM fees. Since Wilbur has a savings account at the same bank, he can link it to avoid overdraft fees. Option B: If Wilbur uses non-ABC ATMs, he'll pay $3 per transaction, totaling $6 per month. Overdraft fee is $35. Option C: $4 per ATM transaction, totaling $8 per month. Overdraft fee is $25. Option D: $3 per ATM transaction, totaling $6 per month. Overdraft fee is $25.
Total Costs Now let's consider the interest. Since the interest rates are very low (0.2% and 0.02%), the interest earned will be minimal and likely not a significant factor in the decision.
Option A: Minimum balance $500. ATM fees: $0. Overdraft fees: $0 (if linked to savings). Option B: Minimum balance $250. ATM fees: $6 (if non-ABC). Overdraft fees: $35. Option C: Minimum balance $300. ATM fees: $8. Overdraft fees: $25. Option D: Minimum balance $100. ATM fees: $6. Overdraft fees: $25.
Determining the Best Option Considering Wilbur's situation, Option A seems to be the best choice. He can meet the minimum balance, avoid ATM fees, and avoid overdraft fees by linking his savings account. Although it offers a small interest, the main advantage is the absence of fees.
Options B, C, and D all have potential ATM and overdraft fees, making them less attractive.
Final Answer Therefore, the best option for Wilbur is Option A.
Examples
Choosing the right bank account is similar to selecting the best tool for a job. Just as a carpenter selects a hammer over a screwdriver for driving nails, Wilbur needs to choose a bank account that suits his financial habits. By analyzing the terms and conditions of each account, such as minimum balance requirements, ATM fees, and overdraft fees, Wilbur can make an informed decision that saves him money and provides the services he needs. This careful evaluation ensures he's not paying unnecessary fees and that his money is working for him, much like choosing the right tool ensures a job is done efficiently and effectively.
