You have $5,400 to deposit. If you deposit the money in a savings account at your local bank, you will earn 1.49% 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 4.44% annual interest, but you will be charged $5 every time you make an ATM withdrawal. Assuming that your ATM withdrawals do not reduce the amount of interest you earn, roughly how many times a year can you make an ATM withdrawal in order for the local savings account to be a better deal than the online savings account?
The online account earns 4.44% − 1.49% = 2.95% more interest than the local account. On $5,400, that difference is $5,400 × 0.0295 = $159.30 per year. At $5 per withdrawal, you would need about $159.30 ÷ $5 = 31.86 withdrawals for the fees to offset the online account’s extra interest, so roughly 32 withdrawals makes the local account the better deal.
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