ANZ bank's progress saver account pays monthly bonus interest on the condition that a customer deposits at
Question:
ANZ bank's progress saver account pays monthly bonus interest on the condition that a customer deposits at least $10 into the account and makes no withdrawals. The bonus interest was 3.74% per year at the time of writing this question. If you fail to make the minimum deposit or withdraw from the account, you are paid a nominal interest rate of 0.01% per year on your savings for the month. The head of retail banking has noted that most account holders do not receive bonus interest each month. Most notably, while they often make deposits, they later withdraw funds, leading to the loss of the bonus interest.
(a) Use concepts relating to intertemporal choice to explain why a customer might deposit funds into the progress saver account only to withdraw them at a penalty later. (3 marks) [Word limit: 200 words]
(b) The bank has another product, a term deposit savings account, that pays 0.15% interest if you commit your money for 12 months. Many customers still use the term deposit despite paying much lower interest than the progress saver account (if the bonus criteria are met) and constraining access to funds. Use concepts relating to intertemporal choice to explain why a customer might deposit money in the term deposit account despite the low interest rate. (3 marks) [Word limit: 200 words]
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay