Question

Sam earns 1% interest on the money he has in a savings account. His dad plans to borrow money from the bank where Sam keeps his money. His dad will have to pay 5% interest on the money he borrows. Based on this information, which sentence is true?

Group of answer choices

Banks make money available to borrowers so people can pay for things they need.

Banks base the amount of interest they charge on what people are willing to pay.

Banks charge a lower rate for money borrowed than for money deposited.

Banks earn money on the difference between what they charge to borrow money and what it pays in interest.

Answer 1

Banks earn money on the difference between what they charge to borrow money and what it pays in interest.

Explanation:

took the test

Answer 2

Banks earn money on the difference between what they charge to borrow money and what it pays in interest.

Explanation:

Interest is the price attached to the time value of money. Interest is the reward received for lending money to others.

The interest you received on deposit is always lower than interest you pay on loan loan obtained, because for the bank to operative profitably, it must be able to make a net interest spread, net interest spread is the difference between the interest paid on deposits and the interest received on loan disbursed by financial institutions.

Another reason why interest paid on deposit is lower than interest on loan is that, banks like any other business must make profit from its business.

The higher interest charged by banks is to cater for the administrative expenses incurred for taking custody of the deposit. administrative expenses can be staff salaries and wages, security, building maintenance, vehicle maintenance e.t.c