Jenna wants to save a $10,000 trust fund she received when she turned 21, and add $50 per month as emergency funds. She has narrowed her search for a savings account to 2 banks, Bank A and Bank B. Bank A pays a fixed rate of interest, and Bank B pays a variable rate, but both rates are currently the same. Jenna’s trusted friend advises her to make the selection based upon her banking needs in consideration of the other services and fees of the banks, because the interest rates are the same. If you were advising Jenna about how to choose an account based upon her own needs, what advice below would you not give her?
Answer
A
The fees and services will make a much bigger difference than the type of interest while your balances are small.
B
The more that you expect to save, the more you should think about what effect the interest rates might have in respect to your values.
C
Choose the variable rate because if it goes up, you will make a lot of money that will pay for the fees.
D
With either bank, you will be earning a competitive rate of interest. You can re-evaluate once a year in comparison with other banks’ interest rates.
Explanation
The advice not to give is to choose the variable rate because it might rise enough to pay for fees. A variable rate can also fall, so Jenna cannot count on earning more, and any change may not be enough to offset fees. Comparing fees and services, considering how much she expects to save, and reviewing rates later are all reasonable ways to choose and reassess an account.
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