Question

Commercial banks are banks where small investors and savers can deposit their money for safekeeping. Savers receive interest on their deposits. What is this interest called?

Answer 1

Interest received by savers on their deposits in a commercial bank is known as interest payments, a compensation for allowing the bank to use their money. Banks serve as financial intermediaries, facilitating the flow of funds between savers and borrowers.

Step-by-step explanation:

The interest that savers receive on their deposits at a commercial bank is referred to as interest payments. These payments are a way for banks to compensate savers for the use of their money.

Banks essentially act as financial intermediaries, where they gather funds from savers to loan out to borrowers. The savers earn interest, while borrowers pay interest on the money they have borrowed. This system creates a cycle of money that supports various economic activities.

Banks also attract depositors by offering interest on savings accounts and may engage in borrowing themselves from larger banks or the central government-run bank, such as the Federal Reserve in the United States. Furthermore, banks also offer various types of accounts, like checking accounts which typically pay little or no interest, to meet the diverse needs of their customers. The specific rate of interest paid to savers can vary based on the type of account and the particular policies of the bank.