An FI offers a $2500 minimum balance investment savings account paying 4 per cent annual interest, and there are no service charges as long as the customer maintains the minimum balance. The customer maintains a balance of $5000, and averages 750 cheques per year. Each cheque has a processing cost to the FI of $0.15. What is the annual gross interest return on this account to the customer?

Question

Quizplus · Accepted Answer

The customer maintains a balance of $5000, so the annual interest earned on this account would be:

$5000 x 0.04 = $200

The average number of cheques per year is 750, and each cheque has a processing cost of $0.15, so the total annual cost of processing cheques would be:

750 x $0.15 = $112.50

Therefore, the annual gross interest return on this account to the customer would be:

$200 - $112.50 = $87.50

However, since there are no service charges as long as the customer maintains the minimum balance of $2500, the full $87.50 would be retained by the customer. So the annual gross interest return on this account to the customer would be $87.50.

An FI Offers a $2500 Minimum Balance Investment Savings Account