Why is there a difference between interest charged and interest earned?
A) Banks are non-profit institutions
B) Banks are profit-making institutions
C) Banks must pay more than they receive
D) There is no difference between interest charged and interest earned
Is the answer C??? Please help, thanks!!! (=
I change my answer to B, that has got to be right, right?
Interest charged is what the consumer pays to borrow money, the interest on a car loan or a mortgage or a credit card, etc. Interest paid is what the bank or savings and loan (or credit union) pays depositors for the use of their money (on a savings account, a certificate of deposit, etc.) Currently deposits earn interest at about 1% or less. Credit cards charge the customer upwards of 18%. Student loans charge around 10%. Mortgage interest rates are at around 3% or 4%. There is a difference between interest paid and interest charged. Why would that be?
yes, B is right.
What does C mean? Who do the banks pay? From whom do they receive?
I'm not sure, that was the question and those are the answer choices, I need help in understanding it.
Thanks, for the much needed help Reed!!! (=
You're welcome, Sammy. Happy holidays!
Same to you!
The correct answer is not option C. The difference between interest charged and interest earned can be attributed to option B - banks are profit-making institutions.
Interest charged refers to the interest that banks charge on loans or credit card balances. This means that borrowers must pay interest on the amount they borrowed, which adds to their overall debt.
On the other hand, interest earned is the interest that banks receive from lending money or investing deposits. Banks earn interest on loans they grant and from investments they make, such as buying bonds or other financial instruments.
This difference between the interest charged and interest earned allows banks to generate profits. They make money by charging a higher interest rate on loans and other credit services compared to the interest rate they pay to depositors.
Therefore, option B is the correct answer. Banks are profit-making institutions, and the difference between interest charged and interest earned is a crucial part of their business model.