Jenna wants to save a $10,000 trust fund she received when she turned 21, and add $50 per month as emergency funds. She has narrowed her search for a savings account to 2 banks, Bank A and Bank B. Bank A pays a fixed rate of interest, and Bank B pays a variable rate, but both rates are currently the same. Jenna’s trusted friend advises her to make the selection based upon her banking needs in consideration of the other services and fees of the banks, because the interest rates are the same.If you were advising Jenna about how to choose an account based upon her own needs, what advice below would you not give her?a.The fees and services will make a much bigger difference than the type of interest while your balances are small.b.The more that you expect to save, the more you should think about what effect the interest rates might have in respect to your values.c.Choose the variable rate because if it goes up, you will make a lot of money that will pay for the fees.d.With either bank, you will be earning a competitive rate of interest. You can re-evaluate once a year in comparison with other banks’ interest rates.

Accepted Solution

C is the worst answer. All other options include a responsible and accurate analysis of her options, although some may be better than others. Options C ignores the fact that a variable interest can also go down, which will cause her to earn a lower interest than the fixed rate.