You have $3,750 to deposit. If you deposit the money in a savings account at your local bank, you will earn 1.75% annual interest and will be able to make ATM withdrawals at your bank’s ATMs. If you deposit the money in an online savings account, you will earn 3.25% interest, but you will be charged $4 every time you make an ATM withdrawal. Assuming that your ATM withdrawals do not reduce the amount of interest you earn, roughly how often must you make an ATM withdrawal for the local savings account to be a better deal than the online savings account?
The online account earns an extra $3,750 × (3.25% − 1.75%) = $56.25 per year. At $4 per withdrawal, you need more than 56.25 ÷ 4 ≈ 14 withdrawals per year for the ATM fees to outweigh that extra interest. Every three weeks is about 17 withdrawals per year, so the local savings account is the better deal.
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