Personal Finance Assignment 3

Evaluating Banking Services: (approximately 1,000 words)“Wow! My account balance is a little lower than I expected,” commented Melanie Harper as she reviewed her bank statement. “Wait a minute! There’s nearly $20 in fees for ATM withdrawals and other service charges.”“Oh no! I also went below the minimum balance required for my free checking account,” Melanie groaned. “That cost me $7.50!” Melanie is not alone in her frustration with fees paid for financial services. While careless money management caused many of these charges, others could have been reduced or eliminated by comparing costs at various financial institutions.Melanie has decided to investigate various alternatives to her current banking services. Her preliminary research provided the following:Mobile banking- allows faster access to account information, to quickly transfer funds, make payments and purchases. May include access to expanded financial services, such as low-cost, online investment trading and instant loan approval.Prepaid debit card- would prevent overspending, staying within the budgeted amount loaded to the card. Cards are usually accepted in most retail locations and online. A variety of fees might be associated with the card.Check-cashing outlet- would result in fees only when services are used, such as money orders, cashing a check, obtaining a prepaid cash card, or paying bills online.Many people do not realize the amount they pay each month for various bank fees. Some basic research can result in saving several hundred dollars a year.Questions: Thoroughly explain each calculation/answer (25 words each)What benefits and drawbacks might Melanie encounter when using each of these financial services? a. Mobile banking, b. Prepaid debit card, c. Check-cashing outletWhat factors should Melanie consider when selecting among these various banking services?What actions might you take to better understand the concerns associated with using various banking services?Exercises:Discuss the effect of technology on the types and costs of services offered by various financial institutions.If a person has ATM fees each month of $18 for 6 years, what would be the total cost of those banking fees?A payday loan company charges 4 percent interest for a two-week period. What would be the annual interest rate from that company?A certificate of deposit will often result in a penalty for withdrawing funds before the maturity date. If the penalty involves two months of interest, what would be the amount for early withdrawal on a $20,000, 6 percent CD?What would be the net annual cost of the following checking accounts? a. Monthly fee, $3.75; processing fee, $0.25 cents per check; checks written, an average of 22 a month. b. Interest earnings of 6 percent with a $500 minimum balance; average monthly balance, $600; monthly service charge of $15 for falling below the minimum balance, which occurs three times a year (no interest earned in these months).Louise McIntyre’s monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for Visa, MasterCard, and Discover cards are $35, $30, and $20, respectively. Her monthly payment on an automobile loan is $285. What is Louise’s debt payments–to–income ratio? Is Louise living within her means? Explain.Fred Reinero has had a student loan, two auto loans, and three credit cards. He has always made timely payments on all obligations. He has a savings account of $2,400 and an annual income of $25,000. His current payments for rent, insurance, and utilities are about $1,100 per month. Fred has accumulated $12,800 in an individual retirement account. Fred’s loan application asks for $10,000 to start up a small restaurant with some friends. Fred will not be an active manager; his partner will run the restaurant. Will he get the loan? Explain your answer.What changes might take place in your personal net worth during different stages of your life? How might these changes affect your credit capacity?Dorothy lacks cash to pay for a $600 dishwasher. She could buy it from the store on credit by making 12 monthly payments of $52.74. The total cost would then be $632.88. Instead, Dorothy decides to deposit $50 a month in the bank until she has saved enough money to pay cash for the dishwasher. One year later, she has saved $642—$600 in deposits plus interest. When she goes back to the store, she finds the dishwasher now costs $660. Its price has gone up 10 percent. Was postponing her purchase a good trade-off for Dorothy?Sidney took a $200 cash advance by using checks linked to her credit card account. The bank charges a 2 percent cash advance fee on the amount borrowed and offers no grace period on cash advances. Sidney paid the balance in full when the bill arrived. What was the cash advance fee? What was the interest for one month at an 18 percent APR? What was the total amount she paid? What if she had made the purchase with her credit card and promptly paid off the bill in full?

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