What would be the net annual cost of the following checking accounts? Monthly fee, $4.20;...

Question:

What would be the net annual cost of the following checking accounts? Monthly fee, $4.20; processing fee, $0.20 per check; checks written, an average of 20 a month.

Annual Cost of Checking Accounts:

Checking accounts typically have a monthly fee for maintaining customers' money in the bank. There are other costs associated with a checking account that may be variable or fixed. Some of the variable costs are a check processing fee, ATM withdrawal fees, etc. Some are fixed such as overdraft fees, check bounce fees, etc. The total annual cost is calculated by summing the monthly costs and variable costs incurred during the year. If a customer maintains a prescribed minimum balance per month then certain banks may waive the monthly fees charged for the account. Such minimum balance is computed on an average basis and is called the average monthly balance. A checking account may or may not pay interest on the account. In case the checking account pays interest, the annual cost may be offset by the interest earned. Savings account, on the other hand, will always pay interest to the customer.

Answer and Explanation: 1

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Given information:

  • Monthly fee (Fm) = $4.20
  • Check processing fee (Fc) = $0.20 per check
  • Average number of checks per month (n) = 20

Solution:

Annual...

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What is a Checking Account? - Definition, Types & Advantages

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Chapter 6 / Lesson 8
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Learn what a checking account is and see how it works. Understand the different types of checking accounts and the benefits and disadvantages of a checking account.


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