Which type of account would you expect to have the highest interest rate?

Which type of account would you expect to have the highest interest rate?

• A. Savings account
• B. Checking account
• C. Money market account
• D. 10-year Certificate of Deposit (CD)

Answer: (D)

The 10-year Certificate of Deposit (CD) typically offers the highest interest rate among the choices provided. This is primarily due to the nature of CDs, which are time deposits that require the account holder to lock in their funds for a specified period—in this case, 10 years. Financial institutions can offer higher interest rates on CDs because they know the funds will remain with them for an extended period, allowing them to utilize those funds for investment purposes. In contrast, savings accounts and checking accounts provide more liquidity, allowing customers to deposit and withdraw funds whenever needed, which is a key feature that typically results in lower interest rates. Money market accounts, while offering better rates than standard savings accounts, usually do not match the higher returns that come with long-term CDs due to their more flexible access to funds. Overall, the structure and terms of a CD align well with competitive interest rates, rewarding account holders who are willing to commit their funds for a longer duration.

The 10-year Certificate of Deposit (CD) typically offers the highest interest rate among the choices provided. This is primarily due to the nature of CDs, which are time deposits that require the account holder to lock in their funds for a specified period—in this case, 10 years. Financial institutions can offer higher interest rates on CDs because they know the funds will remain with them for an extended period, allowing them to utilize those funds for investment purposes.

In contrast, savings accounts and checking accounts provide more liquidity, allowing customers to deposit and withdraw funds whenever needed, which is a key feature that typically results in lower interest rates. Money market accounts, while offering better rates than standard savings accounts, usually do not match the higher returns that come with long-term CDs due to their more flexible access to funds.

Overall, the structure and terms of a CD align well with competitive interest rates, rewarding account holders who are willing to commit their funds for a longer duration.