
in service charges less $150 in foregone income) in value each year and avoid-
ing the bother of service charges.
You can improve this analysis by including the effects of federal income tax.
Suppose Susan is in the 28% income tax bracket, a common bracket for tax-
payers. She would pay $42 in federal income tax on the interest income,
leaving $108 available as income. (U.S. Treasury interest is exempt from state
income taxes.) This is even more advantageous to Susan, in addition to avoid-
ing the bother of the bank service charges.
If Susan could earn 5% on the $6,000, she would earn $300 annually. After
the 28% income tax, she would have $216 left ...