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fgiga [73]
3 years ago
9

What's a commercial bank most likely going to do with your money when you deposit it?

Geography
1 answer:
OleMash [197]3 years ago
8 0

Answer:

Loan it out to someone else at a higher rate of interest than the rate you are earning

Explanation:

The principal way commercial banks earn money in a fractional-reserve system, is by obtaining money from the public, and loaning out a fraction of that money at a higher interest rate.

A commerical bank may pay for a deposit an interest rate of, for example, 2 o 3%, but when this commercial bank loans out part of that deposit, it may charge 5, 6, 7% or even more.

This is why commercial banks tend to be very profitable businesses most of the time.

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