Question

Why can a bank afford to pay an interest rate on a savings account?
A.
Because the bank is insured by the FDIC
B.
Because the Fed prints more currency when needed
C.
Because the bank puts the money into equity investments
D.
Because the bank lends that money out at a higher interest rate


Please select the best answer from the choices provided

A
B
C
D

Answer 1

D

Because banks use deposited funds to make loans or other interest-earning investments and charge higher rates on those assets than they pay savers, earning a net interest margin.