Because checking accounts are ________ liquid for the depositor than savings accounts,they earn ________ interest rates.A) less; higherB) less; lowerC) more; higherD) more; lower
Question
Because checking accounts are ________ liquid for the depositor than savings accounts,they earn ________ interest rates.A) less; higherB) less; lowerC) more; higherD) more; lower
Solution 1
The correct answer is D) more; lower.
Checking accounts are more liquid than savings accounts because you can withdraw money at any time without any limitations. This high liquidity is convenient for the account holder, but it means the bank can't count on the money staying in the account for a long period of time.
Because the bank can't use the money in checking accounts to fund long-term loans, they don't earn much interest. So, checking accounts typically have lower interest rates than savings accounts, which are less liquid and therefore more beneficial for the bank.
Solution 2
The correct answer is D) more; lower. Checking accounts are more liquid for the depositor than savings accounts because they allow for more frequent withdrawals and deposits. However, because of this liquidity, they typically earn lower interest rates than savings accounts.
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