Question

Select the correct statement and rationale relating the interest rates of online banks to those of traditional banks.
a.
Online banks offer greater interest rates than traditional banks because they are more risky,
b.
Online banks offer greater interest rates than traditional banks because they have lower overhead costs.
c.
Online banks offer lower interest rates than traditional banks because they have not had enough time to establish themselves.
d.
Online banks offer lower interest rates than traditional banks because that is the cost of convenience.

Answer 1

b. Online banks offer greater interest rates than traditional banks because they have lower overhead costs.

Rationale: Online banks avoid branch rent, many staffing costs and related expenses, so they can pass those savings to customers in the form of higher deposit rates (and often more competitive loan rates).