You have created a new business and now want to open a commercial checking accou

Question

You have created a new business and now want to open a commercial checking account. You estimate that you will be writing three checks a month (rent, electricity, and Internet) for a total of 36 checks for the year. You also plan to make two debit transactions a month in order to pay for business expenses. You anticipate that the account’s average daily balance will be $800 for the first six months, and then $2,700 for the next six months. You research the banks in your area and have gathered this information: HSBC ($11.00 if you have a $1,000 minimum daily balance OR $20.00 if your minimum daily balance is less than $25.00). Bank of America ($3.00 plus a $0.75 check fee only if you write more than 10 checks a month AND $1.00 per debit transaction). M & T Bank ($5.50 plus a $0.25 check fee AND $2.50 per debit transaction). Citizens Bank ($9.00 plus a $0.20 check fee AND $1.50 per debit transaction). Calculate the cost of doing business with each bank for a year. What bank do you think would be the best decision for your business? How did you come to this conclusion? How would your circumstances have to change in order for you to consider another bank? What other factors would you consider when selecting a bank? How would you find the needed information to make your decision? You are concerned that if the bank fails, you will lose all of your money. What regulations exist to protect you as a bank account holder?

Explanation / Answer

No of Checks to be made per year 36 (For rent, electricity and insurance) Debit Transaction Per Annum (2 per Month) 24 Avg Daily Balance for first 6 Months $800 Avg Daily Balance for next 6 Months $2,700 Calculation of Cost of Operation in Different Banks HSBC Bank Bank of America M & T Bank Citizens Bank Mimimum Daily balance Charges $11 0 0 0 Minuimum Charges $3 $5.50 $9 Check fees 0 0 $9 $7.20 (36 Nos X $0.25) (36 Nos X $0.20) Debit Transaction Fees 0 $24 $60 $36 ( 24 Nos X $1) (24 Nos X $2.50) (24 Nos X $1.50) Total Cost of Operation $11 $27 $75 $52 Company should open its Bank Account in HSBC Bank, as its cost of operation of Bank Account is less than any other Bank. Other Factors to be considered while selecting the Bank are as follows: 1. Various Services Offered by the Bank, other than regular Bank Transactions like on line transactions, RTGS etc. 2. Goodwill of the Bank in the Market. 3. If the Bank can meet the future demands of Business like, granting the Loan, etc. 4. The Banks has branches in all the cities, where the Company wants to do buisness to cater the future need of business.

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