0
Want this question answered?
Be notified when an answer is posted
Add your answer:
Earn +20 pts
How do banks make money when it pays interest on deposits?
They charge a much higher interest on loans than they pay on deposits.
Why are banks willing to pay interest on their consumers' deposits?
Banks are the financial intermediaries of the economy. Without them there will be no financial prosperity. Banks accept deposits from people who have surplus and lend out loans to people who need the money. They offer other services like bank accounts, credit cards etc. They are willing to pay interest on the consumers deposits because - they use those deposits to grant loans to other customers. The loan customers pay the bank a higher interest on the loan amount. Usually the rate of interest at which banks offer loans is significantly higher than the rate of interest they give to bank deposit accounts
How can banks afford to pay interest n their customers savings account deposits?
Because they're loaning the money in those deposits at double or more the interest rates that they're paying the depositors.
Why are banks willing to pay interest on their customers deposits?
Banks are willing to pay interest, because they are turning around and loaning that money out to other people for more interest. They still make money on the deal, and offering interest often attracts customers with larger stacks of money.
How banks afford to pay interest on their customers' savings account deposits?
They loan out the money in their customers' accounts and charge a higher interest rate on the loans.
What do banks do with some of the profits they make by loaning out the money in their customers' savings accounts?
Pay interest on deposits, use it for their operational expenditure, to pay salaries to its employees etc. Pay interest on savings accounts
Why do banks charge higher interest rates on the loans they make than they pay on deposits?
They are in business to make a profit. The spread between the loan rate and the rate on deposits is what keeps them alive.
How can banks afford to pay interest on their customers savings account deposits?
The bank does not just hold on to the money you retain in your savings account. Instead, they offer loans to other customers using that money. The loan customers pay an interest to the bank and the bank in turns offers the savings account holders an interest. Since banks make money by lending our money, they offer us an interest.
Banks earn a profit on the difference between?
Banks earn a profit on the difference between the interest they earn through the loans disbursed to customers and the interest they pay to their deposit customers. For Ex: If a bank earns a 10% interest on loans and gives a 7% interest on deposits, the profit they are earning here is 3%
Why do banks pay their customers interest on the money in their bank accounts?
Banks make money by loaning out money that has been deposited in the bank and charging interest on it. They are limited as to how much money they can loan by how much money has been deposited in the bank. To encourage people to deposit money in the bank they offer to pay some interest on the deposits. The interest paid on the deposits is less than what they charge people who borrow that money. For example: they might pay 1% annual interest on a deposit of $100,000 - which will cost them $1,000. While that money is on deposit, they loan out $80,000 of it at 5% interest - which makes them $4,000 - for a profit of $3,000. They interest they pay to their customers is an inducement for them to make deposits so that they have more money to loan out and thus can make more money.
What is bank's deposit management?
One of the main functions of banks is to accept deposits. Deposits may be fixed, saving, current etc Banks will have to pay interest to the customers on the basis of the amount deposited by them. Deposits are used for the purpose of lending but since banks are using other peoples money to do business, it should make shure that it will be able to repay the deposits to the respective customers when they claim for it. The management of all this is called deposit management.
Do banks pay interest?
Yes & No. Some Banks usually pay interest that can be compounded every quarter on most fixed deposit plans. But, this is not applicable to all banks. Most banks still pay only simple interest on all deposit schemes.
