annual net cost Monthly fee $4, check processing fee of 20 cents, average 23 checks written per month. annual interest of 1.5 percent paid if balance exceeds $750, $8 monthly fee if account falls below minimum balance, average monthly balance $815, account falls below $750 during 4 months
To calculate the annual net cost, we need to consider the monthly fees, check processing fees, interest earned, and any additional fees incurred for falling below the minimum balance.
1. Calculate the annual cost of the monthly fee:
Monthly fee = $4
Annual fee = Monthly fee x 12
Annual fee = $4 x 12 = $48
2. Calculate the annual cost of check processing fees:
Check processing fee = $0.20 (per check)
Average checks written per month = 23
Annual check processing fee = Check processing fee x Average checks written per month x 12
Annual check processing fee = $0.20 x 23 x 12 = $55.20
3. Calculate the annual interest earned:
Annual interest rate = 1.5%
Minimum balance to earn interest = $750
Average monthly balance = $815
Since the account falls below the minimum balance for 4 months, we need to subtract those months from the interest calculation:
Total months in a year = 12
Months below minimum balance = 4
Months eligible for interest = Total months in a year - Months below minimum balance
Annual interest earned = (Average monthly balance - Minimum balance to earn interest) x (Annual interest rate / 100) x Months eligible for interest
Annual interest earned = ($815 - $750) x (1.5 / 100) x (12 - 4) = $9.88
4. Calculate the additional fees for falling below the minimum balance:
Monthly fee for falling below minimum balance = $8
Months below minimum balance = 4
Annual fee for falling below minimum balance = Monthly fee for falling below minimum balance x Months below minimum balance
Annual fee for falling below minimum balance = $8 x 4 = $32
5. Calculate the total annual net cost:
Total annual cost = Annual fee + Annual check processing fee - Annual interest earned + Annual fee for falling below minimum balance
Total annual cost = $48 + $55.20 - $9.88 + $32 = $125.32
Therefore, the annual net cost is $125.32.