First Metrocentre Bank posts the following schedule of fees for its household and small- business transaction accounts: • For average monthly account balances over $1,500 there is no monthly maintenance fee and no charge per check or other draft. • For average monthly account balances of $1,000 to

Question

First Metrocentre Bank posts the following schedule of fees for its household and small- business transaction accounts:

• For average monthly account balances over $1,500 there is no monthly maintenance fee and no charge per check or other draft.

• For average monthly account balances of $1,000 to $1,500, a $2 monthly maintenance fee is assessed and there is a 10¢ charge per check or charge cleared.

• For average monthly account balances of less than $1,000, a $4 monthly maintenance fee is assessed and there is a 15¢ per check or per charge fee.

What form of deposit pricing is this? What is First Metrocentre trying to accomplish with its pricing schedule? Can you foresee any problems with this pricing plan?

Accepted Answer

First Metrocentre Bank has posted a schedule of deposit fees that allows the customer service-charge free checking for average monthly account balances over $1,500. Lower balances are assessed an inverse monthly maintenance fee plus an increased per-check charge as the average monthly account balance falls. This is conditional deposit pricing designed to encourage more stable, larger-denomination accounts which would give the bank more money to use and, perhaps, a more stable funding base. The fees on under-$1,000 accounts are stiff which may drive away many small depositors to other banks.

Question 12.P.3: First Metrocentre Bank posts the following schedule of fees ...

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