Question

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?

a.
5
b.
12
c.
14
d.
10

Answer 1

C. 14

Explanation:

I just answered it correct

Answer 2

The amount earned from the local account must be greater than that of the online account.
Amount from local account = 6,500(1.0145)ⁿ
Amount from online account = 6,500(1.0225)ⁿ - 4x
Where n is the number of years and x is the number of ATM withdrawals.

6,500(1.0145)ⁿ > 6,500(1.0225)ⁿ - 4x
4x > 6,500[(1.0225)ⁿ - (1.0145)ⁿ]; n = 1
x > 13
The number of withdrawals must exceed 13.

The answer is C.