Banks charge a higher interest rate on loans than what they offer on __________.

Answer: The Correct answer is Deposits

  • The main source of income for the banks is the difference between what is charged from borrowers (through loans) and what is paid to depositors.
  • For various economic activities and other reasons, there is a huge demand for loans.
  • Hence to meet the loan requirements of people, banks make use of its deposits.
  • Major part of the deposits available with the banks are given as loans.
  • 15% of the deposits are held as cash by the banks in India.
  • Only a small proportion of deposits received by banks are kept as cash with themselves.
  • Depositors who might come to withdraw money from the bank on any given day, these deposits are given by the bank to pay them.
  • The bank is able to manage with this cash, even when they have a large number of depositors, since only some depositors may come to withdraw the cash.
  • Banks mediate between those who need money (borrowers) and those who have surplus money (depositors).

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