Reference no: EM13710181

Consider the following situation: A bank customer currently maintains a checking account balance of $5000 so that she does not have to pay monthly maintenance charges or per-debit charges. She writes about 20 checks a month for a total of about $2100. If she kept only that amount in her checking account, she would have to pay a monthly maintenance fee of $20 plus a $.20/check charge.
Which of the following choices do you think this customer should make:
• Open a savings account at the bank at 5 percent interest. Keep her extra money there and have the bank transfer funds from the savings account in the case of an overdraft. The bank does not charge for transfers but allows only two per month.
• Put the extra money in a money market account that earns about 8 percent. This account allows only a limited number of checks to be written each month.

• Keep things as they are.

Consider these questions as you make your recommendation:

• What else would it be good to know about the customer's check-writing habits?
• How much in fees will it cost to keep the checking account balance as low as possible?
• How much interest will she earn with the interest-bearing checking account option?

• How much more interest would she earn if the extra money was in a money market account rather than in the bank's savings account?
• About how many checks would she have to write each month for it to be obviously better to have a checking account with no per-check charge?