You have $6,500 to deposit. If you deposit the money in a savings account at your local bank, you will earn 1.45% 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 2.25% 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, how many ATM withdrawals must you make in a year for the local savings account to be a better deal than the online savings account?
The online account earns 2.25% − 1.45% = 0.80% more interest, which is $6,500 × 0.008 = $52 per year. The online account’s withdrawal fees are $4 per withdrawal, so 14 withdrawals cost $56—more than its $52 interest advantage. Therefore, the local savings account becomes the better deal at 14 withdrawals, choice c.
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