Question

A wealthy person has a savings account with a bank. Every month, the bank pays this person interest based on the amount of money in the savings account. What would be the most likely effect if the bank stopped paying interest?

The customer would reinvest his or her savings somewhere else, and the bank would have less money to lend.
The customer would report the bank to the Federal Government, and the bank would be closed.
The customer would not care because interest rates are not competitive anyway.
The customer would leave the money at the bank, and the bank would eventually change its policy.

Answer 1

The most likely effect if the bank stopped paying interest on a savings account would be that the customer would reinvest their savings somewhere else, and the bank would have less money to lend.

When a bank pays interest on a savings account, it incentivizes customers to keep their money in that bank. This is because the customer earns extra money over time through the interest payments. However, if the bank were to stop paying interest, the customer would no longer receive this benefit. As a result, the customer would likely seek out alternative options where they can earn interest on their savings.

When customers withdraw their money from a bank, it reduces the amount of money the bank has available to lend to other customers. This can lead to a decrease in the bank's ability to provide loans and financial services. Ultimately, if the bank consistently loses customers and has less money to lend, it may need to change its policies or face financial difficulties.

It's important to note that the other options provided in the question are less likely outcomes. Reporting the bank to the Federal Government and closing the bank is a more severe response that would typically only happen in extreme cases of misconduct or financial instability. The statement that the customer would not care because interest rates are not competitive anyway is not accurate, as many customers rely on the interest earned from their savings accounts. Lastly, the customer leaving the money at the bank without receiving any interest would be unlikely, as it would not be in their best financial interest to do so.

I hope this helps you. :)

Answer 2

If a bank stops paying interest on a savings account, the customer would not receive any interest on their savings account balance. The customer may choose to move their savings account to another bank that pays interest or invest their money elsewhere. The bank would have less money to lend because it would have fewer deposits from customers. However, the bank may choose to use the money it saves by not paying interest to fund other activities or offer other services.