Question

Why would banks offer higher interest rates for savings and checking accounts?
A) To encourage people to spend money in the economy.
B) To discourage people to spend money in the economy.
C) To encourage people to put money in savings and checking accounts.
D) To discourage people to put money in savings and checking accounts.

Answer 1

The correct answer is C.

It is possible that in a certain moment a bank needs liquidity (money in cash). Therefore, in order to attract customers that will deposit their money in savings or checking accounts in this bank, it needs to offer them an attractive retribution.

The interest rate will determine the amount that the bank has to pay to the depositor who opens an account. The higher the interest rate, the higher the retribution offered to investors in exchange for their money.

Answer 2

Answer:

C) To encourage people to put money in savings and checking accounts.

Explanation: