Question

Gareth has $2,000 to invest. Putting the money in a savings account at his local bank will earn him 2.2% annual interest and gives him the ability to make ATM withdrawals from that bank’s ATMs. Putting the money in an online savings account will earn him 4.85% annual interest, but he will be charged $3 every time he makes an ATM withdrawal. Assuming that Gareth’s ATM withdrawals do not affect the amount of interest he earns, roughly how many ATM withdrawals must Gareth make every year for the local savings account to be a better deal than the online savings account?
a.
8
b.
14
c.
18
d.
25

Answer 1

Online interest = 2000(0.0485) = $97.00
Local interest = 2000(0.022) = $44.00

Let n be withdrawals. Online net = 97 − 3n. Local better when 44 ≥ 97 − 3n → 3n ≥ 53 → n ≥ 53/3 ≈ 17.67.

So he must make about 18 withdrawals. Answer: c.