Chapter 6.1, Problem 3R

To determine

To evaluate: Money making by interest for savers.

Explanation of Solution

Interest at its simplest, is the cost of borrowing money. Simply put, we will pay interest on borrowed money, and when we lend money, we can collect interest. Opening a savings account is one of the best ways to fix this for many people. If we put money into a savings account, the bank borrows the money in a technical way and provides interest in return. The interest rate determines how much money a bank costs to hold deposit of your assets.

People gain interest by investing money or depositing funds into an interest-bearing bank account, like a savings account or a certificate of deposit (CD). Banks lend to others: they use the money to provide loans to other customers and make other investments and pass on a portion of that profit to them as interest

Regularly (for instance, every month or quarter) the bank charges interest on the savings people make. They will see an interest rate transaction, and they will find your account balance is rising. They can either use the money or keep it in their account so it keeps on earning interest. When they leave money in their account, the savings will gain momentum; they can gain interest on their initial deposit, as well as the interest accrued to your account.

This way money is generated for savers by interest.

Economics Concept Introduction

Introduction: Banking can be described as the business practice of taking and safeguarding money owned by other individuals and institutions, and then loaning it out to earn a profit. Nevertheless, the activities covered by the banking sector have expanded with the passage of time, and banks are now also providing numerous other services.