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What is interest, from the point of view of someone holding a deposit account?
AA fee the institution charges to hold your deposit
BA tax the government collects on your deposit
CA penalty applied when you withdraw your deposit
DMoney the institution pays for holding your deposit
Answer & Solution
Correct answer: D. Money the institution pays for holding your deposit
1. A deposit account moves money from the customer to the financial institution to hold.
2. The institution pays for the use of that money, and the payment is called interest.
3. So interest flows from the institution to the depositor, not the other way.
4. Fees and penalties flow from the depositor to the institution, which reverses the direction.
5. Tax may be owed on interest earned, but the tax is not the interest itself.
_Source: FDIC Money Smart for Adults (September 2018), Module 5: Your Savings, section Interest and Compounding_
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