Question

A new bank attracts customers by not charging any fees and paying an average of 2 percent on deposits. To ensure that it will have customers for years to come, the bank is charging 1 percent on loans. What is the bank’s financial outlook?

Answer 1

Answer: The unfavorable spread between the interest charged and interest earned will cause the bank to lose money.

Explanation:

Banks are financial institution for saving money and offer little as interest rate and despite the interest rate they still deposit charges from customers over deposit and maintenance of the accounts to sustain their service, the major way a bank makes a profit is by taking deposits at a lower interest rate, and lend out the funds at a higher interest, them not charging any fees and paying an average of 2 percent on deposits will affect the sustainability of the bank