Question

Bryan searched for a new bank prior to filling out his direct deposit form at his new employer. He noted that 2-4-7 Bank offered higher interest rates on savings accounts and money market accounts; and it offered other amenities such as online banking and funds transfer that many traditional banks offer. What is the most logical reason that 2-4-7 Bank can compete for customers by offering higher interest rates?

Answer 1

Answer:

2-4-7 has low operating costs

Explanation:

The 2-4-7 bank must be an online bank only. Online-only banks provide banking services, just like traditional banks. However, they offer higher interest rates to their customers as compared to traditional banks.

Online-only banks do not require branches to serve customers; neither do they do not need to hire a large number of employees. Their transactions are done via the internet. An online-only bank, therefore, has low operating costs as it does not pay rent for several branches and has a lean staff. Online banks pass the benefits of low operating costs to customers in the form of higher interest rates.

Online-only banking is a new concept in the banking industry. Online banks are using high interest rates to popularize the concept and attract customers.