Chapter 6, Problem 10AA

To determine

To define: The rate of interest on savings account and the reason for banks paying rate of interest.

Explanation of Solution

Interest applies to two ways: either the amount paid to the bank by a borrower for lending money or the amount earned by an account holder for the benefit of leaving money with the bank.

The rate of interest on savings account is the proportion by which the saving account of an individual will rise when he/she keeps a fixed amount of money in the bank for a specific period of time.

Bank pays rate of interest on savings account to attract more and more deposits or savings of people so that it can use for multiple purpose such as lending. The money deposited in the savings account is lent out to the borrowers who use this money in some productive work which helps in the economy to grow.