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A certificate of deposit pays more than a regular savings account on what condition?
AThe depositor keeps a minimum balance every month
BThe deposit stays untouched for a specified period
CThe depositor also holds a checking account there
DThe deposit is insured by the government scheme
Answer & Solution
Correct answer: B. The deposit stays untouched for a specified period
1. A certificate of deposit pays a higher interest rate than a regular savings account.
2. That higher rate is conditional on the deposit remaining for a specified period.
3. The depositor is being paid for surrendering the right to withdraw at will, which is why a certificate of deposit is a time deposit.
4. Insurance cover applies to ordinary savings accounts as well, so it cannot be what earns the extra interest.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.3 U.S. Financial Institutions_
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