The difference between the interest rate a bank earns on a loan and the interest rate it pays is known as the Net Interest Margin (NIM). Here's how it works:

1. Banks earn interest when they lend money to borrowers. This is often in the form of loans, such as home loans, personal loans, and business loans. The rate at which they lend this money is known as the lending rate.

2. On the other hand, banks also pay interest to their customers who deposit money with them. This could be in savings accounts, fixed deposits, etc. The rate at which they pay this interest is known as the deposit rate.

3. The difference between the lending rate (the interest they earn) and the deposit rate (the interest they pay) is the Net Interest Margin. This is a key source of income for banks.

4. For example, if a bank lends at an interest rate of 6% and pays an interest rate of 3% on deposits, its Net Interest Margin would be 3% (6% - 3%).

5. A higher NIM indicates that the bank is more profitable.

Question

The difference between the interest rate a bank earns on a loan and the interest rate it pays is known as the Net Interest Margin (NIM). Here's how it works:

1. Banks earn interest when they lend money to borrowers. This is often in the form of loans, such as home loans, personal loans, and business loans. The rate at which they lend this money is known as the lending rate.

2. On the other hand, banks also pay interest to their customers who deposit money with them. This could be in savings accounts, fixed deposits, etc. The rate at which they pay this interest is known as the deposit rate.

3. The difference between the lending rate (the interest they earn) and the deposit rate (the interest they pay) is the Net Interest Margin. This is a key source of income for banks.

4. For example, if a bank lends at an interest rate of 6% and pays an interest rate of 3% on deposits, its Net Interest Margin would be 3% (6% - 3%).

5. A higher NIM indicates that the bank is more profitable.

Knowee AI · Accepted Answer

The difference between the interest rate a bank earns on a loan and the interest rate it pays is known as the Net Interest Margin (NIM). Here's how it works:

1. Banks earn interest when they lend money to borrowers. This is often in the form of loans, such as home loans, personal loans, and business loans. The rate at which they lend this money is known as the lending rate.

2. On the other hand, banks also pay interest to their customers who deposit money with them. This could be in savings accounts, fixed deposits, etc. The rate at which they pay this interest is known as the deposit rate.

3. The difference between the lending rate (the interest they earn) and the deposit rate (the interest they pay) is the Net Interest Margin. This is a key source of income for banks.

4. For example, if a bank lends at an interest rate of 6% and pays an interest rate of 3% on deposits, its Net Interest Margin would be 3% (6% - 3%).

5. A higher NIM indicates that the bank is more profitable.

The is the difference between the interest rate a bank earns on a loan and the interest rate it pays.

Question

What is the difference between the interest rate a bank earns on a loan and the interest rate it pays?

Solution

Similar Questions

Upgrade your grade with Knowee