Chapter 6.1, Problem 5R

To determine

To evaluate: The comparison between basic savings account and a time deposit.

Explanation of Solution

A bank or financial institution holding an interest-bearing deposit account is called a savings account. Although these accounts usually pay a moderate interest rate, their protection and flexibility make them a good choice for saving cash that we all want to have accessible for short-term needs. Savings accounts have some restrictions on how much money we can borrow but generally have great flexibility to build an emergency fund.

A time deposit is a bank account that bears interest and has a pre-set maturity date. A perfect example of this is a certificate of deposit. To get the negotiated interest rate the money has to remain in the account for the specified period. Time deposits typically pay an interest rate much higher than a normal savings account. The longer the maturity period, the greater would be the interest rate. One can buy a time deposit like a CD from virtually any credit union, bank, or other finance firm. The interest rates paid would differ amongst other variables.

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 sector of the banking have expanded with the passage of time, and banks are now also providing numerous other services.